UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 (No Fee Required) for the fiscal year ended
December 25, 1999 (52 weeks)
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
_______ to ________
Commission File Number 1-5084
TASTY BAKING COMPANY
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1145880
(State of Incorporation) (IRS Employer Identification Number)
2801 Hunting Park Avenue
Philadelphia, Pennsylvania 19129
(Address of principal executive offices) (zip code)
Telephone: 215-221-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock,
par value $.50 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates as of February
14, 2000 is $77,971,871 computed by reference to the closing price on the New
York Stock Exchange on such date.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 14, 2000.
Class Outstanding
Common Stock,
par value $.50 7,823,348 shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Reference
- -------- ---------
Pages 12 to 31 inclusive of the Annual Report to Share-
holders for the Fiscal Year Ended December 25, 2000 Part II
Pages 2 to 10 inclusive of the definitive Proxy Statement
dated March 31, 2000 Part III
(Note: Portions of page 10 are not deemed "filed")
The index of exhibits is located on page number 7 of 16.
1 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART I
Item 1. Business
The Registrant was incorporated in Pennsylvania in 1914 and maintains
its main offices and manufacturing facilities in Philadelphia, Pennsylvania. The
Registrant's Tastykake Division (Tastykake) manufactures and sells a variety of
premium single portion cakes, pies, cookies, pretzels, brownies, pastries,
donuts, miniature donuts, snack bars, boxed cookies and large family sized cakes
and pies under the well established trademark, TASTYKAKE(R). These products
comprise approximately 100 varieties. The availability of some products,
especially the holiday-themed offerings, varies according to the season of the
year. The single portion cakes, cookies and donuts principally sell at retail
prices for individual packages ranging from 40(cent) to 79(cent) per package and
family convenience packages ranging from $2.39 to $2.59. The pies principally
sell at a retail price of 79(cent) each and include various fruit and creme
filled varieties and, at various times of the year, additional seasonal
varieties. The pastries and brownies are marketed principally in snack packages
and sell at a retail price of 79(cent) per package. The best known products with
the widest sales acceptance are various sponge cakes marketed under the product
trademarks JUNIORS(R) and KRIMPETS(R), and chocolate enrobed cakes under KANDY
KAKES(R). Currently, the Registrant markets three varieties of low-fat cake
which are sold individually at a retail price of 50(cent) or in family
convenience packages at a retail price of $2.59. In 1999, Tastykake introduced a
line of large family sized cakes produced by Tasty Baking Oxford, Inc., a
wholly-owned subsidiary, and currently sold by the Registrant, under the
trademark CLASSIC BAKED GOODS(TM) at a retail price of $3.29. In addition, large
pies and boxed cookies are sold by the Registrant under the trademark CLASSIC
BAKED GOODS(TM) at retail prices of $3.29 and $2.99, respectively. There are
approximately ten varieties available under the Classic Baked Goods line.
Dutch Mill Baking Company, Inc. (Dutch Mill), a wholly-owned
subsidiary, based in Wyckoff, New Jersey, produces approximately 25 varieties of
donuts, donut holes, cookies and cakes primarily under the trademark DUTCH
MILL(R). Dutch Mill's direct sales are made through distributors to retail
outlets in the New York City metropolitan area. These products are sold
primarily in family convenience packages at retail prices ranging from $1.99 to
$2.99 per package. Tastykake purchases donut holes from Dutch Mill to be sold
under the TASTYKAKE(R) label.
Tasty Baking Oxford, Inc., located in Oxford, Chester County,
Pennsylvania, currently manufactures yeast raised products and large cakes,
under the trademarks TASTYKAKE(R), TASTYKAKE(R) CLASSIC BAKED GOODS(TM), SNAK n'
FRESH(TM) and AUNT SWEETIE'S BAKERY(R) for distribution through the traditional
route and distributor methods as well as private label, food service and
institutional marketplaces. The SNAK n' FRESH(TM) and AUNT SWEETIE'S BAKERY(TM)
brands were instituted to allow the Registrant to enter private label and food
service without compromising the integrity of its TASTYKAKE(R) brand. The Oxford
facility produces honey buns, danish pastries, large cakes, muffins and yeast
raised donuts. The muffins and donuts are currently being manufactured for sale
solely in the food service and institutional marketplaces. During 1999, all of
the products from the Oxford facility were sold to the Tastykake division for
resale.
Tastykake products are sold principally by independent
owner/operators through distribution routes to approximately 25,000 retail
outlets in New York, New Jersey, Pennsylvania, Delaware, Maryland and Virginia,
which make up Tastykake's principal market. This method of distribution has been
used since 1986. In 1999, the Registrant discontinued forty-three route
territories in certain areas not achieving appropriate levels of profitability,
assigning most of those territories to certain other independent regional
distributorships. Tastykake also distributes its products through
distributorships and major grocery chains in states located throughout the
midwest, southwest and south. The Registrant has formed alliances with
distributors who can handle the Tastykake product line most effectively in order
to promote geographic expansion. Products are sold in forty-seven states, Puerto
Rico and Canada. Tastykake also distributes its products through the
TASTYKARE(TM) program, whereby consumers can call a toll-free number to order
the delivery of a variety of Tastykake gift packs.
The Registrant is in the process of completing an upgrade of the
entire computer system for all its divisions which is enabling the Registrant to
coordinate a wide range of activities and will eventually link to large
customers and suppliers. In 1998, the Registrant began a $22 million
modernization program for the manufacturing facility in Philadelphia,
Pennsylvania. The program will be completed in phases and is expected to take
approximately four years from inception. Phase I of the program, the complete
renovation of the Krimpet and Junior production and packaging lines, was
completed in 1999. Phase II, a renovation of the cupcake lines began in 2000.
These renovations are expected to increase productivity and efficiency.
While the four largest customers of the Tastykake division comprise a
significant portion of its net sales revenue, the large number of retailers
comprising the customer base ensures the availability of Tastykake products to
consumers in the principal market area.
2 of 16
<PAGE>
Item 1. Business, continued
The Registrant maintains a comprehensive advertising program which
utilizes outdoor poster campaigns, newspapers, customer coupons, radio and
television advertising, and promotions with various sports teams. While the
companies sponsor research and development activities, the cost is not a
material item.
The Registrant is engaged in a highly competitive business. Although
the number of competitors varies among marketing areas, certain competitors are
national companies with multiple production facilities and nationwide
distribution systems. The Registrant believes it is one of the largest producers
in the country specializing in premium single portion pies and cakes. The
Registrant is able to maintain a strong competitive position in its principal
marketing area through the quality of its products and brand name recognition.
Outside of its principal market area, the Registrant's trademarks and
reputation for quality are not well-known. In these markets, the Registrant
competes for the limited shelf space available from retailers chiefly on price,
quality and the ability to sell its products (i.e. consumer acceptance).
The Registrant has a significant market position throughout its
principal marketing area. Outside of the principal market area, its market share
is generally small. Its principal competitor in the premium snack cake market
throughout the country is Interstate Bakeries Corporation, with its three (3)
brands - Hostess, Dolly Madison and Drakes. There are also local independent
bakers which compete in a number of regional markets. Interstate Bakeries
Corporation is a large publicly-held corporation which has achieved national
recognition of its "Hostess" brand name through national advertising and
competes on price, quality and brand name recognition. It also promotes its
Drakes product line in areas where the Registrant is attempting to expand its
market share. McKee Foods Corporation, a large privately-held company, competes
in the snack cake market under the brand Little Debbie, principally as a low
price snack cake.
No difficulty was experienced in obtaining raw materials in 1999. It
is not anticipated that there will be any significant adverse effects on the
financial condition of the Registrant as a result of price fluctuations or
availability of raw materials in 2000.
The Registrant's policies with respect to working capital items are
not unique. Inventory is generally maintained at levels sufficient for one to
three weeks sales, while the ratio of current assets to current liabilities is
maintained at a level between 1.5 and 2.5 to 1.
The Registrant employs approximately 1,100 persons, including
approximately 140 part-time employees.
Year 2000 disclosure
The company has completed its assessment of potential consequences
due to the change to the year 2000. The company has determined that this change
did not appear to have an impact on operations and does not anticipate that this
change will have any impact going forward. Immaterial amounts were spent on
upgrading certain equipment to be compliant and those upgrades appear to have
been successful. It was not necessary to utilize any contingency plans and the
company does not anticipate the need for any contingency plans in the future.
3 of 16
<PAGE>
Item 2. Properties
The locations and primary use of the materially important physical
properties of the Registrant and its subsidiaries are as follows:
Location Primary Facility Use
2801 Hunting Park Avenue Corporate Office,
Philadelphia, PA (1) Production of cakes,
pies, cookies and donuts
Fox and Roberts Streets Sales and Finance Offices,
Philadelphia, PA (1) Data Processing
Operations, Office
Services and Warehouse
500 Braen Avenue Dutch Mill Offices,
Wyckoff, NJ (2) Production of donuts,
cookies and cakes
700 Lincoln Street Tasty Baking Oxford Offices,
Oxford, PA (3) Production of honey buns, donuts,
pastries, muffins, and large
cake, future production of other
varieties of baked goods
(1) These properties are recorded as capital leases. For a
description of major encumbrances on these properties, see Note 6 and 7 of Notes
to Consolidated Financial Statements in the 1999 Annual Report to Shareholders -
Exhibit 13, incorporated herein by reference.
(2) This property is leased under an operating lease. For a
description of rental obligations, see Note 7 of Notes to Consolidated Financial
Statements in the 1999 Annual Report to Shareholders - Exhibit 13, incorporated
herein by reference.
(3) This property was purchased and is owned by Tasty Baking Oxford,
Inc.
In addition to the above, the Registrant leases various other
properties used principally as local pick up and distribution points. All of
these properties are sufficient for the business of the Registrant as now
conducted, although certain manufacturing space is near full utilization.
Item 3. Legal Proceedings
The Registrant is involved in certain legal and regulatory actions,
all of which have arisen in the ordinary course of the Registrant's business.
The Registrant is unable to predict the outcome of these matters, but does not
believe that the ultimate resolution of such matters will have a material
adverse effect on the consolidated financial position or results of operations
of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
4 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART II
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
Page(s) in Annual Report to
Shareholders for the Fiscal
Year Ended December 25, 1999
Item 5 Market for the Registrant's
Common Equity and Related
Shareholder Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 13 - 15
Item 7a Quantitative and Qualitative Disclosure 23 - 24
about market risk
The Registrant has certain floating rate debt notes. Under
current market conditions, the Registrant believes that
changes in interest rates would not have a material impact
on the financial statements of the Registrant. The
Registrant also has notes receivable from owner operators
whose rates adjust every three years, and, therefore, would
partially offset the effect of fluctuations in the
Registrant's interest rates on its notes payable. The
Registrant also has the right to sell these notes
receivable, and could use these proceeds to liquidate a
corresponding amount of the debt notes payable. Information
on the debt and receivable notes can be found in the Notes
to Consolidated Financial Statements, Notes 4,5 and 3,
respectively, in the 1999 Annual Report to Shareholders.
Item 8 Consolidated Financial Statements
and Supplementary Data:
Summary of Significant Accounting
Policies 12
Quarterly Summary 16
Consolidated Statements of
Operations and Retained Earnings 18
Consolidated Statements of Cash Flows 19
Consolidated Balance Sheets 20 - 21
Consolidated Statements of Changes
in Capital Accounts 22
Notes to Consolidated Financial
Statements 23 - 30
Report of Independent Accountants 31
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
This item is not applicable.
5 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART III
CROSS REFERENCE INDEX
FORM 10-K
ITEM NUMBER AND CAPTION INCORPORATED MATERIAL
Page(s) in definitive
Proxy Statement
Item 10 Directors and Executive Officers
of the Registrant 4 - 7
Item 11 Executive Compensation* 7 - 11
Item 12 Security Ownership of Certain Beneficial
Owners and Management 2 - 3
Item 13 Certain Relationships and Related
Transactions
With respect to certain business
relationships of Fred C. Aldridge, Jr.,
Esquire, director 5
*Note that the sections entitled "REPORT OF COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION" and "PERFORMANCE
GRAPH" pursuant to Reg. S-K, Item 402(a) (8) and (9) are
not deemed "soliciting material" or "filed" as part of
this report.
6 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
for the fiscal years ended December 25, 1999,
December 26, 1998 and December 27, 1997
------
Pages
(a)-1. List of Financial Statements
Summary of Significant Accounting Policies Incorporated herein
Quarterly Summary by reference to
Consolidated Statements of Operations and Retained pages 12 to 30
Earnings inclusive of the
Consolidated Statements of Cash Flows Annual Report to
Consolidated Balance Sheets Shareholders for the
Consolidated Statements of Changes in Capital fiscal year ended
Accounts December 25, 1999.
Notes to Consolidated Financial Statements See page 12 of 16.
(a)-2. Schedule* for the fiscal years ended December 25, 1999,
December 26, 1998 and December 27, 1997:
Report of Independent Accountants 9 of 16
II. Valuation and Qualifying Accounts 10 of 16
(a)-3. Exhibits Index - The following Exhibit Numbers refer to
Regulation S-K, Item 601**
(3) (a) Articles of Incorporation of Registrant
as amended are incorporated herein by
reference to Exhibit 3 to Form 10-K report of
Registrant for 1998.
(b) By-laws of Registrant as amended on
April 24, 1998. 11 of 16
(10) (a) 1991 Long-term Incentive Plan, effective
as of January 1, 1991, is incorporated herein
by reference to Exhibit 10 to Form 10-K
report of Registrant for 1990.
(b) 1985 Stock Option Plan, effective December
20, 1985, is incorporated herein by reference
to Exhibit A of the Proxy Statement for the
Annual Meeting of Shareholders on April 18,
1986, filed on or about March 21, 1986.
(c) Senior Management Employment Agreements dated
July 1, 1988 are incorporated herein by
reference to Exhibit 10(c) to Form 10-K
report of Registrant for 1991.
(d) Supplemental Executive Retirement Plan, dated
February 18, 1983 and amended May 15, 1987
and April 22, 1988, is incorporated herein by
reference to Exhibit 10(d) to Form 10-K
report of Registrant for 1991.
- ----------------------
* All other schedules are omitted because they are inapplicable or not
required under Regulation S-X or because the required information is given
in the financial statements and notes to financial statements.
** All other exhibits are omitted because they are inapplicable.
7 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
ITEM 14, CONTINUED
Pages
(e) ManagementStock Purchase Plan is incorporated herein
by reference to the Proxy Statement for the Annual
Meeting of Shareholders on April 19, 1968 filed on or
about March 20, 1968 and amended April 23, 1976,
April 24, 1987 and April 19, 1991.
(f) Trust Agreement dated as of November 17, 1989 between
the company and Meridian Trust Company relating to
Supplemental Executive Retirement Plan is
incorporated herein by reference to Exhibit 10(f) to
Form 10-K report of Registrant for 1994.
(g) Director Retirement Plan dated October 16, 1987
is incorporated herein by reference to Exhibit
10(h) to Form 10-K report of Registrant for 1992.
(h) 1993 Replacement Option Plan (P&J Spin-Off) is
incorporated herein by reference to Exhibit A of
the Definitive Proxy Statement dated March 17,
1994 for the Annual Meeting of Shareholders on
April 22, 1994.
(i) 1994 Long Term Incentive Plan is incorporated
herein by reference to Exhibit 10(j) to Form 10-K
report of Registrant for 1994.
(j) Trust Agreement dated January 19, 1990 between
the company and Meridian Trust Company relating
to the Director Retirement Plan is incorporated
herein by reference to Exhibit 10(k) to Form 10-K
report of Registrant for 1995.
(k) 1997 Long Term Incentive Plan is incorporated herein
by reference to Annex II of the Proxy Statement for
the Annual Meeting of Shareholders on April 24, 1998.
Each of exhibits 10(a) - 10(k) constitute management contracts
or compensatory plans or arrangements.
(13) Annual Report to Shareholders for the fiscal
year ended December 25, 1999, pages 12 to 31 only.
(The balance of the Annual Report is not deemed
"filed" or "soliciting material".) 12 of 16
(21) Subsidiaries of the Registrant 13 of 16
(23)(a)Consent of Independent Accountants 14 of 16
(b) The Registrant did not file a report on Form 8-K during the
fourth quarter ended December 25, 1999.
8 of 16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and
the Board of Directors
Tasty Baking Company
Our audits of the consolidated financial statements referred to in
our report dated February 8, 2000, appearing on page 31 of the 1999 Annual
Report to Shareholders of Tasty Baking Company, (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 8, 2000
9 of 16
<PAGE>
<TABLE>
<CAPTION>
TASTY BAKING COMPANY AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions(1) Period
Deducted from applicable assets:
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
For the fiscal year ended December 25, 1999 $2,849,538 $ 428,864 $ 404,314 $2,874,088
========== ========== ========== ==========
For the fiscal year ended December 26, 1998 $2,548,552 $ 716,000 $ 415,014 $2,849,538
========== ========== ========== ==========
For the fiscal year ended December 27, 1997 $2,394,864 $ 499,787 $ 346,099 $2,548,552
========== ========== ========== ==========
Inventory valuation reserves:
For the fiscal year ended December 25, 1999 $ 135,000 $ 323,709 $ 183,600 $ 275,109
========== ========== ========== ==========
For the fiscal year ended December 26, 1998 $ 125,000 $ 78,225 $ 68,225 $ 135,000
========== ========== ========== ==========
For the fiscal year ended December 27, 1997 $ 100,000 $ 57,379 $ 32,379 $ 125,000
========== ========== ========== ==========
Spare parts inventory reserve for obsolescence:
For the fiscal year ended December 25, 1999 $ 340,000 $ 116,489 $ 49,417 $ 407,072
========== ========== ========== ==========
For the fiscal year ended December 26, 1998 $ 325,000 $ 29,762 $ 14,762 $ 340,000
========== ========== ========== ==========
For the fiscal year ended December 27, 1997 $ 300,000 $ 294,967 $ 269,967 $ 325,000
========== ========== ========== ==========
Equipment allowance for obsolescence:
For the fiscal year ended December 25, 1999 $ 150,000 $ 42,086 $ 17,086 $ 175,000
========== ========== ========== ==========
For the fiscal year ended December 26, 1998 $ 100,000 $ 44,348 $ (5,652) $ 150,000
========== ========== ========== ==========
For the fiscal year ended December 27, 1997 $ 75,000 $ 25,000 $ -- $ 100,000
========== ========== ========== ==========
</TABLE>
(1) Decrease due to write-off of related assets.
10 of 16
<PAGE>
TASTY BAKING COMPANY AND SUBSIDIARIES
The Annual Report to Shareholders for the fiscal year ended December 25, 1999
will be mailed to all shareholders on March 31, 2000.
12 of 16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TASTY BAKING COMPANY
By /s/ Carl S. Watts
-----------------
Carl S. Watts, Chairman, President
and Chief Executive Officer
14 of 16
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Philip J. Baur, Jr. Retired Chairman of the March 23, 2000
- -----------------------------
Philip J. Baur, Jr. Board and Director of
Tasty Baking Company
/s/ Carl S. Watts Chairman of the Board, March 23, 2000
- -----------------------------
Carl S. Watts President, Chief
Executive Officer and
Director of Tasty
Baking Company
/s/ Nelson G. Harris Chairman of The March 23, 2000
- -----------------------------
Nelson G. Harris Executive Committee and
Director of Tasty
Baking Company
/s/ John M. Pettine Executive Vice President, March 23, 2000
- -----------------------------
John M. Pettine Chief Financial and
Accounting Officer and
Director of Tasty
Baking Company
/s/ Fred. C. Aldridge, Jr. Director of Tasty Baking March 23, 2000
- -----------------------------
Fred C. Aldridge, Jr. Company
/s/ G. Fred DiBona, Jr. Director of Tasty Baking March 23, 2000
- -----------------------------
G. Fred DiBona, Jr. Company
/s/ James L. Everett, III Director of Tasty Baking March 23, 2000
- -----------------------------
James L. Everett, III Company
/s/ Judith M. von Seldeneck Director of Tasty Baking March 23, 2000
- -----------------------------
Judith M. von Seldeneck Company
16 of 16
TASTY BAKING COMPANY
-----------------
BY-LAWS
-----------------
ARTICLE I
OFFICES
Section 1. The principal office shall be at 2801 Hunting Park
Avenue in the City of Philadelphia, Commonwealth of Pennsylvania. The location
of the principal office shall, at all times, be within the limits of the
Commonwealth of Pennsylvania.
Section 2. The corporation may also have offices at such other
places both within and without the Commonwealth of Pennsylvania, as the Board of
Directors may, from time to time, determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held in
the City of Philadelphia, Pennsylvania, or at such other places within or
without the Commonwealth of Pennsylvania as the Board of Directors may
designate.
Section 2. The annual meeting of the shareholders shall be
held on such day in the months of April, May or June as the Board of Directors
shall designate, when they shall elect by a plurality vote, by ballot, a Board
of Directors, to serve for one year and until their successors are
<PAGE>
elected or chosen and qualify, and transact such other business as may properly
be brought before the meeting.
Section 3. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the articles
of incorporation may be called at any time by the Chairman of the Board or a
majority of the Board of Directors, or shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast at the
particular meeting, upon written request delivered to the Secretary of the
corporation. Such request shall state the purpose or purposes of the proposed
meeting. Upon receipt of any such request, it shall be the duty of the Secretary
to call a special meeting of the shareholders to be held at such time, not less
than ten nor more than sixty days thereafter, as the Secretary may fix. If the
Secretary shall neglect to issue such call, the person or persons making the
request may issue the call.
Section 4. Written notice of every meeting of the
shareholders, specifying the place, date and hour and the general nature of the
business of the meeting, shall be served upon or mailed, postage prepaid, at
least ten days prior to the meeting, unless a greater period of notice is
required by statute, to each shareholder.
Section 5. The officer having charge of the transfer books for
shares of the corporation shall prepare and make at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to notice
of the meeting and a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address and the number of
shares held by each which lists shall be kept on file at the principal office of
the corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such lists shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting.
Section 6. Business transacted at all special meetings of
shareholders shall be limited to the purposes stated in the notice.
Section 7. The presence, in person or by proxy, of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on a particular matter, shall be requisite and
shall constitute a quorum at all meetings of the shareholders for the
transaction of business, except as otherwise provided by statute or by the
articles of incorporation or by these by-laws. If, however, any meeting of the
shareholders cannot be organized because a quorum has not attended, the
2
<PAGE>
shareholders entitled to vote thereat, present in person or by proxy, shall have
power, except as otherwise provided by statute, to adjourn the meeting to such
time and place as they may determine, but in the case of any meeting called for
the election of directors such meeting may be adjourned from day to day or for
such longer periods not exceeding fifteen days each as the holders of a majority
of the votes present in person or by proxy and entitled to vote shall direct,
and those who attend the second of such adjourned meetings, although less than a
quorum, shall nevertheless constitute a quorum for the purpose of electing
directors. At any adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. When a quorum is present or represented at any
meeting, any action to be taken shall be authorized by a majority of the votes
cast at such a meeting by all shareholders entitled to vote thereon, unless the
question is one upon which, by express provision of the statutes or of the
articles of incorporation or of these by-laws, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 9. Each shareholder shall at every meeting of the
shareholders be entitled to vote in person or by proxy, but no proxy shall be
voted on after three years from its date, unless coupled with an interest, and,
except where the transfer books of the corporation have been closed or a date
has been fixed as a record date for the determination of its shareholders
entitled to vote, transferees of shares which are transferred on the books of
the corporation within ten days next preceding the date of such meeting shall
not be entitled to vote at such meeting. In each election for directors, every
shareholder entitled to vote shall have the right, in person or by proxy, to
multiply the number of votes to which he may be entitled by the total number of
directors to be elected in the same election, and he may cast the whole number
of such votes for one candidate or he may distribute them among any two or more
candidates. The candidates receiving the highest number of votes up to the
number of directors to be elected shall be elected.
Section 10. In advance of any meeting of shareholders, the
Board of Directors may appoint judges of election, who need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election be not
so appointed, the chairman of any such meeting may and, on the request of any
shareholder entitled to vote or his proxy, shall make such appointment at the
meeting. The number of judges shall be one or three. If appointed at a meeting
on the request of one or more shareholders entitled to vote or proxies, the
majority of shares present and entitled to vote shall determine whether one or
three judges are to be appointed. No person who is a candidate for office shall
act as a
3
<PAGE>
judge. The judges of election shall do all such acts as may be proper to conduct
the election or vote with fairness to all shareholders, and shall make a written
report of any matter determined by them and execute a certificate of any fact
found by them, if requested by the chairman of the meeting or any shareholder
entitled to vote or his proxy. If there be three judges of election, the
decision, act or certificate of a majority, shall be effective in al respects as
the decision, act or certificate of all.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
board shall never be less than three (3) and shall never be more than ten (10).
The Board of Directors may by a vote of not less than a majority of the
authorized number of directors increase or decrease the number of directors from
time to time, without a vote of the shareholders; provided, however, that any
such decrease shall not eliminate any director then in office. Effective with
the election of directors at the annual meeting of shareholders to be held in
1986, the directors shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as shall be provided in the manner specified in these by-laws; one
class to hold office initially for a term expiring at the annual meeting of
shareholders to be held in 1987, another class to hold office initially for a
term expiring at the annual meeting of shareholders to be held in 1988, and
another class to hold office initially for a term expiring at the annual meeting
of shareholders to be held in 1989, with the members of each class to hold
office until their successors are elected and qualified. The number of directors
in each class shall be determined by a vote of not less than a majority of the
authorized number of directors. At the annual meeting of shareholders of the
corporation to be held in 1987 and thereafter, the successors to the class of
directors whose term expires at that meeting shall be elected to hold office for
a three year term and until their successors are elected and qualified.
Section 2. Except as otherwise prescribed in the articles of
incorporation, notwithstanding anything contained in these by-laws to the
contrary, and notwithstanding the fact that a lesser percentage may be permitted
by law, the affirmative vote of the holders of at least seventy-five percent
(75%) of the voting power of all shares of the corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to remove any director from office without assigning any cause for
such removal at any annual or special meeting of shareholders. Except as
otherwise prescribed in the articles of incorporation, notwithstanding anything
contained in these by-laws
4
<PAGE>
to the contrary, and notwithstanding the fact that a lesser percentage may be
permitted by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to alter, amend or adopt any provisions inconsistent with, or
repeal Section 1 or Section 2 of this Article III, or any provision thereof at
any annual or special meeting of shareholders.
Section 3. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. Any director so elected shall hold office for the remainder of the full
term of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified.
Section 4. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the articles of
incorporation or by these by-laws directed or required to be exercised and done
by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the Commonwealth of
Pennsylvania.
Section 6. The first meeting of each newly elected Board of
Directors shall be held immediately following the annual meeting of the
shareholders at the corporation's principal office unless a different time and
place shall be fixed by the shareholders at the meeting at which such directors
were elected and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a
majority of the whole board shall be present. In the event such meeting is not
held at such time and place, or in the event of the failure of the shareholders
to fix a different time or place for such first meeting of the newly elected
Board of Directors, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for such meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 7. Regular meetings of the Board of Directors may be
held without notice on the third Friday of each month at the principal office of
the corporation or at such other time or place as shall from time to time be
determined by the board.
5
<PAGE>
Section 8. Special meetings of the Board may be called by the
Chairman of the Board or Chief Executive Officer on one day's notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the Chairman of the Board or Secretary in like manner and on like
notice on the written request of two directors, which request shall state the
purpose or purposes of the proposed meeting.
Section 9. At all meetings of the board a majority of the
directors in office shall be necessary to constitute a quorum for the
transaction of business, and the acts of a majority of the directors present at
a meeting at which a quorum is present shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
articles of incorporation. If a quorum shall not be present at any meeting of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. The order of business at all meetings of the board
shall be substantially as follows:
(1) Roll Call. A quorum being present.
(2) Reading and approval of minutes of preceding meeting of
Directors.
(3) Reading and approval of unapproved minutes of Executive
Committee.
(4) Reports of officers.
(5) Unfinished business.
(6) New business.
Section 11. If all the directors shall severally or
collectively consent in writing to any action to be taken by the corporation,
such action shall be as valid a corporate action as though it had been
authorized at a meeting of the Board of Directors.
Section 12. In the event a national disaster or national
emergency is proclaimed by the President or Vice-President of the United States,
the directors, even though there may be less than a quorum present, may take all
actions which they could have taken if a quorum had been present.
6
<PAGE>
Section 13. One or more directors may participate in a meeting
of the board or any committee of the board by means of conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other.
EXECUTIVE COMMITTEE
Section 14. The Board of Directors may, by resolution passed
by a majority of the whole board, designate two or more of its number to
constitute an Executive Committee which, to the extent provided in such
resolution shall have and exercise the authority of the Board of Directors in
the management and business of the corporation. Vacancies in the membership of
the committee shall be filled by the Board of Directors at a regular or special
meeting of the Board of Directors. The Executive Committee shall keep regular
minutes of its proceedings and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 15. The Board of Directors shall have the power to
fix, and from time to time to change, the compensation of the directors of the
corporation which compensation may include an annual retainer fee and a fee for
attendance at regular or special meetings of the board and of any committees of
the board.
CHAIRMAN EMERITUS
Section 16. Any director who shall have served as Chairman of
the Board or as Chairman and Chief Executive Officer may be appointed by the
Board of Directors to hold the position of Chairman Emeritus for such time as
the board shall by resolution determine from time to time which may extend
beyond his term as a director. Following the end of his term as a director, the
Chairman Emeritus (i) shall not be entitled to continue to receive the
directors' annual retainer fee, (ii) shall be entitled to attend meetings of the
Board of Directors and to be paid the regular attendance fee therefor but, (iii)
shall have no vote at such meetings or responsibility for actions taken by the
Board of Directors.
DIRECTOR EMERITUS
Section 17. Upon retirement, the Board of Directors may elect
a director to the position of Director Emeritus. The Director Emeritus shall
serve for a one year term and may be re-elected by the Board of Directors for
one further one year term but may not serve for more than two such one year
terms. The Director Emeritus (i) shall not be entitled to continue to receive
the directors'
7
<PAGE>
annual retainer fee, (ii) shall be entitled to attend meetings of the Board of
Directors and to be paid the regular attendance fee therefor but, (iii) shall
have no vote at such meetings or responsibility for actions taken by the Board
of Directors.
ARTICLE IV
NOTICES
Section 1. Notices to directors and shareholders shall be in
writing and delivered personally or mailed to the directors or shareholders at
their addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the articles of incorporation or of these
by-laws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a Chief Executive
Officer, a President, a Vice-President, a Secretary and a Treasurer. The Board
of Directors may also choose additional vice-presidents and one or more
assistant secretaries and assistant treasurers.
Section 2. The Board of Directors, immediately after each
annual meeting of shareholders, shall elect a Chairman of the Board. The board
shall also annually choose a Chief Executive Officer, a President, a
Vice-President, a Secretary and a Treasurer who need not be members of the
board.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
8
<PAGE>
Section 4. The salaries of all officers of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote or
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at all
meetings of the Board of Directors and all meetings of the shareholders and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe. The Chairman of the Board need not be
an employee of the corporation.
CHIEF EXECUTIVE OFFICER
Section 7. The Chief Executive Officer shall have general
supervisory responsibility and authority over the officers of the corporation,
shall see that all orders and resolutions of the Board of Directors are carried
into effect, shall preside at all meetings of the Board of Directors in the
absence of the Chairman, and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe. The Board of
Directors shall determine the person or persons who shall perform the duties and
exercise the powers of the Chief Executive Officer in the absence or disability
of the Chief Executive Officer.
Section 8. The Chief Executive Officer shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
THE PRESIDENT
Section 9. The President shall be the chief operating officer
of the corporation, shall, under the direction of the Chief Executive Officer,
have general and active management of the business of the corporation and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe. The Board of Directors shall determine the
person or
9
<PAGE>
persons who shall perform the duties and exercise the powers of the President in
the absence or disability of the President.
THE VICE-PRESIDENTS
Section 10. The Vice-President or Vice-Presidents shall
perform such duties and have such powers as the Board of Directors may from time
to time prescribe.
THE SECRETARIES AND ASSISTANT SECRETARIES
Section 11. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
Executive Committee when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the corporation and affix the same to any instrument
requiring it and, when so affixed, it shall be attested by his signature or by
the signature of an assistant Secretary.
Section 12. The assistant Secretary, or if there are more than
one, the assistant secretaries in the order determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 14. He shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration of the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 16. The assistant Treasurer, or if there shall be more
than one, the assistant Treasurers in the order determined by the Board of
Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
10
<PAGE>
ARTICLE VI
CERTIFICATES OF SHARES
Section 1. The certificates of shares of the corporation shall
be numbered and registered in a share register as they are issued. They shall
exhibit the name of the registered holder and the number and class of shares and
the series, if any, represented thereby and the par value of each share or a
statement that such shares are without par value as the case may be.
Section 2. Every share certificate shall be signed by the
Chairman of the Board and the Treasurer and shall be sealed with the corporate
seal which may be facsimile, engraved or printed.
Section 3. Where a certificate is signed (1) by a transfer
agent or (2) by a transfer agent and/or registrar, the signature of such
Chairman of the Board and Treasurer may be facsimile. In case any officer or
officers who have signed, or whose facsimile signature or signatures have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the corporation, whether because of death, resignation or otherwise,
before such certificate or certificates have been delivered by the corporation,
such certificate or certificates may nevertheless be adopted by the corporation
and be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
LOST OR DESTROYED CERTIFICATES
Section 4. The Board of Directors shall direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
destroyed or wrongfully taken, upon the making of an affidavit of that fact by
the person claiming the share certificate to be lost, destroyed or wrongfully
taken. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, destroyed or wrongfully taken,
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have been
lost, destroyed or wrongfully taken.
TRANSFERS OF SHARES
Section 5. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 6. The Board of Directors may fix a time, not more
than seventy-five days, prior to the date of any meeting or shareholders or the
date fixed for the payment of any dividend or distribution or the date for the
allotment of rights or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination of
the shareholders entitled to notice of and to vote at any such meeting or
entitled to receive payment of any such dividend or distribution or to receive
any such allotment of rights or to exercise the rights in respect to any such
change, conversion or exchange of shares. In such case only such shareholders as
shall be shareholders of record on the date so fixed shall be entitled to notice
of and to vote at such meeting or to receive payment of such dividend or to
receive such allotment of rights or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
any record date so fixed. The Board of Directors may close the books of the
corporation against transfers of shares during the whole or any part of such
period and in such case written or printed notice thereof shall be mailed at
least ten days before the closing thereof to each shareholder of record at the
address appearing on the records of the corporation or supplied by him to the
corporation for the purpose of notice.
11
<PAGE>
REGISTERED SHAREHOLDERS
Section 7. The corporation shall be entitled to treat the
holder of record of any share or shares as the holder in fact thereof and shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, and shall not be liable for any
registration or transfer of shares which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with actual
knowledge that a fiduciary or nominee of a fiduciary is committing a breach of
trust in requesting such registration or transfer, or with knowledge of such
facts that its participation therein amount to bad faith.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
Section 1. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe this conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expense (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. No such indemnification against expenses shall be made, however, in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the Court of Common
Pleas of the county in which the registered office of the corporation is located
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Common Pleas or such other court
shall deem proper.
Section 3. Indemnification under Sections 1 and 2 of this
Article shall be made by the corporation when ordered by a court or upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
those Sections. Such determination shall be made (1) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders.
12
<PAGE>
Section 4. In addition to and notwithstanding the limited
indemnification provided in Sections 1, 2 and 3 of this Article, the corporation
shall indemnify and hold harmless its present and future officers and directors
of, from and against any and all liability, expenses (including attorneys'
fees), claims, judgments, fines and amounts paid in settlement, actually
incurred by such person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including but not limited to any action by or in the right of the
corporation), to which such person is, was or at any time becomes, a party, or
is threatened to be made a party, by reason of the fact that such person is, was
or at any time becomes a director or officer of the corporation, or is or was
serving or at any time serves at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other person of any nature whatsoever. Nothing contained in this
Section 4 shall authorize the corporation to provide, or entitle any officer or
director to receive, indemnification for any action taken, or failure to act,
which action or failure to act is determined by a court to have constituted
willful misconduct or recklessness.
Section 5. Expenses incurred in defending a civil or criminal
action, suit or proceeding of the kind described in Sections 1, 2 and 4 of this
Article shall be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking, by or on behalf
of the person who may be entitled to indemnification under those Sections, to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation.
Section 6. The indemnification, advancement of expenses and
limitation of liability provided in this Article shall continue as to a person
who has ceased to be a director or officer of the corporation and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7. Nothing herein contained shall be construed as
limiting the power or obligation of the corporation to indemnify any person in
accordance with the Pennsylvania Business Corporation Law as amended from time
to time or in accordance with any similar law adopted in lieu thereof. The
indemnification and advancement of expenses provided under this Article shall
not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any agreement,
vote of shareholders or directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding that
office.
Section 8. The corporation shall also indemnify any person
against expenses, including attorneys' fees, actually and reasonably incurred by
him in enforcing any right to indemnification under this Article, under the
Pennsylvania Business Corporation Law as amended from time to time or under any
similar law adopted in lieu thereof.
Section 9. Any person who shall serve as director, officer,
employee or agent of the corporation or who shall serve, at the request of the
corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be deemed to do so
with knowledge of and in reliance upon the rights of indemnification provided in
this Article, in the Pennsylvania Business Corporation Law as amended from time
to time and in any similar law adopted in lieu thereof.
13
<PAGE>
INSURANCE
Section 10. The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability.
LIMITATION OF DIRECTORS' LIABILITY
Section 11. No director of this corporation shall be personally liable
for monetary damages as such for any action taken or failure to take any action,
on or after January 27, 1987, unless (a) the director has breached or failed to
perform the duties of his office under Section 8363 of Title 42 of the
Pennsylvania Consolidated Statutes Annotated (relating to the standard of care
and justifiable reliance of directors); and (b) the breach or failure to perform
constitutes self dealing, willful misconduct or recklessness; provided, however,
that the provisions of this Section 11 shall not apply to the responsibility or
liability of a director pursuant to any criminal statute, or the liability of a
director for the payment of taxes pursuant to local, state or federal law.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the shares of the corporation,
subject to the provisions of the articles of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in its shares, subject to
the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. The directors shall send, or cause to be sent, to
the shareholders, within one hundred twenty (120) days after the close of the
fiscal year of the corporation, a financial report as of the closing date of the
preceding fiscal year.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed manually or by facsimile signature of such officer
or officers or such other person or persons as the Board of Directors may from
time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Pennsylvania." The seal may be used by causing it or a facsimile thereof
to be impressed or affixed or reproduced or otherwise.
SHAREHOLDER EQUITY PROTECTION ACT
Section 7. In accordance with Section 910A(1) of the PA
Business Corporation Law, the provisions of Section 910 shall not apply to the
corporation.
14
<PAGE>
1990 ANTI-TAKEOVER AMENDMENTS TO THE
PENNSYLVANIA BUSINESS CORPORATION LAW
Section 8. The provisions of Section 1715 of Title 15 of the
Pennsylvania Consolidated Statutes shall be applicable to the corporation.
Section 9. Subchapter G of Chapter 25 of Title 15 of the
Pennsylvania Consolidated Statutes as enacted by Act No. 36 of 1990, shall not
be applicable to the corporation.
Section 10. Subchapter H of Chapter 25 of Title 15 of the
Pennsylvania Consolidated Statutes as amended by Act No. 36 of 1990, shall not
be applicable to the corporation.
ARTICLE IX
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed
by a majority vote of the shareholders entitled to vote thereon at any regular
or special meeting duly convened after notice to the shareholders of that
purpose or by a majority vote of the members of the Board of Directors at any
regular or special meeting duly convened after notice to the directors of that
purpose, subject always to the power of the shareholders to change such action
by the directors.
Tasty Baking Company
1999 Annual Report
Quality preparation:
the key ingredient
in Tasty's growth
<PAGE>
Contents
1
Financial Highlights
2
Letter to Shareholders
4
Operations Review
11
Financial Information
32
Directors and Officers
About Tasty
Tasty Baking Company, one of the nation's oldest and largest independent baking
companies, is a leading producer of sweet baked goods. A baker of individual
snack cakes and pies since 1914, Tasty now also produces a variety of mealtime
products, including breakfast baked goods and large cakes. Tasty has annual
sales of $230 million and distributes its products in supermarkets and
convenience stores throughout the Middle Atlantic States. An aggressive national
distribution program is establishing the Tasty brand in Midwestern, Southern,
Southwestern and West Coast states, as well as in Puerto Rico and Canada. Tasty
operates three regional bakeries and markets its products under the Tastykake,
Dutch Mill, Aunt Sweeties, and Snak n' Fresh brands. Tasty Baking Company is
listed on the New York Stock Exchange under the symbol TBC.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Year 1999(a) 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Gross Sales $226,350,463 $228,453,285
Net Sales $150,661,637 $150,729,377
Net Income $ 4,702,822 $ 5,729,232
Average Number of
Common Shares Outstanding:
Basic 7,824,308 7,807,507
Diluted 7,864,825 7,952,874
Per Share of Common Stock:
Net Income:
Basic $ .60 $ .73
Diluted $ .60 $ .72
Cash Dividend $ .48 $ .48
At the Year End 1999 1998
- --------------------------------------------------------------------------------
Total Assets $111,752,941 $101,744,180
Working Capital $ 14,406,273 $ 15,830,409
Current Ratio 2.11 to 1 2.24 to 1
Shareholders' Equity:
Amount $ 45,421,544 $ 44,356,736
Per Share of Common Stock $ 5.81 $ 5.67
<FN>
(a) During the first quarter of 1999, the company incurred a $950,000 route
restructuring charge related to its decision to discontinue route
territories in certain areas that were not achieving appropriate levels of
profitability. The after tax effect of this charge was $570,570 or $.07 per
share. Also during the first quarter, the company incurred an after tax
charge of $204,709 or $.03 per share related to an accounting change that
required the write-off of start-up costs.
</FN>
</TABLE>
1
<PAGE>
To Our Shareholders:
While 1999 proved to be a challenging year for the Company, as reflected in our
financial results, we were able to make significant progress toward our
long-term growth objectives.
As we entered fiscal year 1999, we focused the Company on a number of key
initiatives:
o Increasing the profitability of owner/operator sales routes.
o Readjusting our promotional programs.
o Increasing revenues and profits from national sales.
o Improving the profitability of our Oxford bakery.
o Completing the first phase of our bakery modernization.
o Completing the computer conversion we began in 1998.
Operating Highlights
While these initiatives will improve future financial results, they had a
negative impact on our 1999 results. Here are the details of those initiatives:
In the first quarter of 1999 we discontinued 43 route territories, resulting in
a route restructuring charge of $950,000 or $.07 per share. However, that
decision significantly reduced our selling expenses.
During the first quarter 1999, we were required to write off the remaining
start-up costs for our Oxford facility, a charge of $340,000 or $.03 per share.
Our decision to readjust our promotion program resulted in lower promotional
activity during the second and third quarters of 1999. Our competitors were even
more aggressive in their promotion efforts, especially during the third quarter
1999. As a result, sales were negatively impacted in the second and third
quarters. Compounding those issues, the unusually hot summer in 1999 negatively
impacted sales and caused higher than normal product damage.
We continued to expand national product distribution, achieving a 10% increase
in national sales as a result. That increase was lower than we had forecast
largely because of our efforts to protect profit margins.
We worked hard to improve the profitability of our Oxford facility. Despite
those efforts - and the very positive reception to the Classic Baked Goods line
we introduced last April - we incurred a loss of $.05 per share on our
operations at Oxford. That is a significant improvement over the $.18 per-share
loss in 1998 but still short of break-even, our goal for 1999.
Phase I of the modernization of our Hunting Park Avenue bakery began in early
January 1999, with the conversion of the sixth floor production and packaging
lines. Our manufacturing employees worked diligently preparing for and executing
this conversion. But the task of bringing four production lines into operation
at the same time proved more difficult than we anticipated. Those difficulties
hurt sales in the first quarter last year and our overall bakery efficiency was
less than optimal during the first three quarters of 1999.
[GRAPHIC OMITTED]
Carl S. Watts
Chairman, President and
Chief Executive Officer
2
<PAGE>
I am pleased to report that the Company experienced no Y2K computer glitches.
However, the conversion to a new computer system required a tremendous effort on
the part of our management and administrative personnel. In addition, we have
had the financial burden of running two computer systems until the conversion is
complete.
Financial Highlights
The financial results for 1999 are as follows:
o Gross sales were $226,350,000, compared with $228,453,000 last year.
o Net sales were $150,662,000, which compares to $150,729,000 reported in
1998.
o Net income was $4,703,000 or $.60 per share, compared with $5,729,000 or
$.72 per share last year. However, 1999's results were negatively impacted
by the route restructuring charge and the write-off of startup costs which
amounted to $.10 per share.
o On an operating basis, net income was $5,478,000 or $.70 per share.
o At year-end 1999 our total assets were $111,753,000, which compares to
$101,744,000 in 1998.
o Total debt rose to $22,006,000 from $15,560,000 in 1998.
o Shareholders equity was $45,422,000, compared to $44,357,000 at year-end
1998.
Outlook
Going into the year 2000, we believe we have positioned the Company for greater
profitability. Our very positive results for the fourth quarter of 1999 are an
indication that a turnaround has begun. Here are additional factors that we feel
justify optimism:
Our effort to increase route profitability and stabilize promotions is working.
Our national sales program is building momentum both with existing accounts and
with the addition of major new accounts such as Wal-Mart.
The Oxford bakery is positioned for profitability in the year 2000.
We will continue our bakery modernization program in the year 2000, aided by the
experience we gained with the sixth floor conversion. The third floor conversion
work will be completed one production line at a time, rather than converting the
entire floor.
The computer conversion will be completed.
In closing, I assure you that fiscal year 1999 has been as frustrating for the
management team and employees as it has been for its shareholders. However, I
can also assure you that your management team and employees have never worked
harder to accomplish our goals and we remain committed and optimistic about the
year 2000.
/s/ Carl S. Watts
Carl S. Watts
Chairman, President and
Chief Executive Officer
3
<PAGE>
Operations Review
Core Markets
Our core route markets - serviced by Tasty owner/operators in the Mid-Atlantic
area - provide the lion's share of Tasty's sales. Sales increases in these core
markets mean a significant improvement in our bottom line. During the fourth
quarter of 1999, we posted a 4.4% increase in net sales which resulted in a
substantial increase in operating profit.
For this reason, we have focused a great deal of energy in boosting route sales
with new products, fine tuning our pricing and promotion initiatives, and
improving the overall efficiency of the owner/operator distribution system. Here
are the highlights of those initiatives:
New Products
New products are a key part of Tasty's strategy. Even though snack cakes are the
foundation of the Tastykake brand, last year - for the first time ever - the
company began baking family-sized cakes or, as they are known in the trade,
multi-serve cakes.
Marketed under the name Classic Baked Goods, these large cakes include scaled-up
versions of Tasty favorites such as Butterscotch Krimpets, Chocolate Cupcakes,
and Crumb Coffee Cakes. In all, Tasty introduced eight varieties of these
multi-serve cakes in 1999, and it is likely that the product line will be
refined as we measure and adjust to consumer preferences. Breakfast items will
be added to the Classic Baked Goods line sometime this year.
The introduction of Classic Baked Goods is another step in our efforts to have
more Tasty products suitable for mealtimes - notably breakfast and dinner - as
well as lunch and snack eating occasions.
Progress Report: Core Market Sales
Cost control, pricing discipline, and higher sales in our core mid-Atlantic
markets served by owner/operators, all contributed to the significant increase
in Tasty's fourth quarter operating income.
[GRAPHIC OMITTED]
Family affair.
Bill Gaida (left), Zone Manager for our Philadelphia Region and a Tasty employee
for 34 years, works with his son Eric, a route owner/ operator, setting up a
waterfall display in preparation for a special price promotion.
4
<PAGE>
Pricing and promotion
Competition in the baked goods category remained keen throughout the industry in
1999, with the snack cake category experiencing particularly aggressive price
pressures. As a result, we revisited our strategic promotion objectives in an
effort to produce desired sales results, while at the same time, not having to
resort to excessive trade discounts.
Route Restructuring
The route distribution system is the lynch pin of our sales efforts, but
improvements were needed and we made them.
Accordingly, during 1999 we discontinued 43 route territories which were not
achieving acceptable levels of profitability. These changes substantially
lowered our selling expenses, while at the same time, improving profitability in
these sales territories.
Progress Report: National Sales
Tasty is hard at work expanding our national distribution network.
In 1999 we reached agreements that will put Tasty products into thousands of
additional sales outlets.
5
<PAGE>
Foodservice
Foodservice holds excellent sales potential for Tasty, particularly for our
breakfast products such as danish, honey buns, yeast raised donuts and muffins.
These products will assist us in achieving our goal of increasing the
profitability of the Oxford facility.
In addition, we took another step forward in realizing the potential of the
foodservice business by entering into a distribution agreement with ARAMARK, one
of the country's largest foodservice companies. Under the agreement, Tasty will
be a preferred supplier of its traditional snack products to ARAMARK's
Refreshment Services Division for their premium on-site coffee service and
vending programs.
[GRAPHIC OMITTED]
Family size.
Candelaria Alonza, a production associate, with large cakes emerging from the
tunnel oven at our Oxford, Pennsylvania bakery.
6
<PAGE>
National Sales
As part of our continuing efforts to build a national brand, we entered into new
or expanded sales distribution agreements with major distributors, mass
merchandisers, and retail chain stores.
Sales distribution agreements - new and existing - are crucial since they lay
the groundwork for growth outside the Mid-Atlantic core markets served by our
owner/operators. Several of the more recent national sales distribution
agreements included Wal-Mart, Core-Mark, Safeway, and Save-A-Lot.
As our market share grows and the Tasty brand becomes more popular among
consumers in other markets, we are better able to control our promotional and
market support activity.
Progress Report: Product Development
The introduction of large, multi-serve cakes is helping expand Tasty's brand
presence to family mealtimes.
[GRAPHIC OMITTED]
New Classic.
It's a Butterscotch Krimpet, only bigger. The icing table at our Oxford bakery
is just one more stop on the way to family dinner tables for these Butterscotch
Krimpet Cakes, the number one seller in our new Classic Baked Goods line.
7
<PAGE>
Manufacturing
For over a year now, we have been extensively modernizing our Hunting Park
Avenue bakery in Philadelphia. Thanks to projected increases in plant
efficiency, the automated production lines we have installed so far should
eventually yield improvements in operating costs.
Throughout 1999, our modernization efforts were concentrated on the sixth floor
of our Hunting Park Avenue bakery. The total revamping of the sixth floor
production lines was not without its difficulties. The unique custom-engineered
mixing, baking, and packaging machinery used on these production lines is faster
and less labor intensive than the equipment it replaces. Unfortunately, the new
equipment is also far more complex. Debugging these new
Progress Report: Manufacturing
Tasty's Philadelphia bakery is in the midst of a makeover. The sixth floor
Krimpet lines now gleam with new stainless equipment and automated production
and packaging. A complete renovation of our third floor cupcake lines is
scheduled for 2000.
[GRAPHIC OMITTED]
New equipment.
Our Hunting Park Avenue bakery is being modernized. Florence Page, a packer with
28 years of service at Tasty, is shown monitoring the flow of cupcakes to the
new case-wrapping machine on a third floor production line.
8
<PAGE>
production lines proved more time consuming and more disruptive to production
than we had expected. These startup problems have now been resolved and the
newly automated processes will generate savings in the coming years.
This year, we are launching a similar upgrade for the production lines on the
third floor of our Hunting Park Avenue bakery. During this production upgrade we
plan to convert one line at a time. Thus, we will have three lines in operation
at all times throughout this conversion.
Tasty purchasing had a good year. The credit goes to an unrelenting emphasis on
cost control and the excellent relationships we have with all our suppliers.
Tasty's strategy on purchasing continues to be commitment to long term
contracts, where possible, to avoid unexpected cost increases during the year.
[GRAPHIC OMITTED]
New ideas.
Denise Iarussi, a Tasty Purchasing Agent and 25-year Tasty veteran, was on the
core team that helped guide the launch and integration of Tasty's new
information technology system. The new system integrates the entire range of
computer supported activities, from manufacturing, to accounting functions,
inventory control, sales order processing and purchasing.
9
<PAGE>
Tasty's New Integrated Information Systems
For the past three years, Tasty has devoted considerable effort and staff time
to the implementation of the company's new computer systems.
The new system is based on a midrange computer using Enterprise Resource
Planning software geared to process manufacturers like Tasty. In replacing our
older mainframe Legacy system, the new system will integrate the entire range of
computer supported activities such as: manufacturing, accounting, inventory
control, sales order processing and purchasing.
The capabilities of the new system are impressive, but it is the benefits of the
new system that are truly compelling:
Better customer support - Our customers want to partner with companies that can
match their technical sophistication when it comes to electronic commerce and
data interchange. The new system will make it easier for large supermarket
chains and distributors to do business with Tasty. Additionally, the new data
warehouse will allow our sales and marketing staff to analyze sales activity by
customer activity right down to the item level.
Improved cash flow - The new computer system will not only speed accounts
receivable collection by a full day's sales but also improve our overall working
capital.
Greater insight - Faster, more accurate data collection and a central data
warehouse to store that information give managers easy access to fresh data, a
consolidated view and a better decision-support tool.
Progress Report: Support Services
Support services play a key role in determining Tasty's overall operating
efficiency. The new integrated system will give managers desktop access to
virtually any level of detail they need.
10
<PAGE>
Financial Information
Management's Review
12
Summary of Significant Accounting Policies
13
Management's Analysis
16
Quarterly Summary
17
Five Year Selected Financial Data
Consolidated Financial Statements
18
Operations and Retained Earnings
19
Cash Flows
20
Balance Sheets
22
Changes in Capital Accounts
23
Notes to Consolidated Financial Statements
31
Report of Independent Accountants
11
<PAGE>
Management's Review
Summary of Significant Accounting Policies
Fiscal Year
The company and its subsidiaries operate under a 52-53 week fiscal year, ending
on the last Saturday of December.
Basis of Consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries. Intercompany transactions are eliminated.
Use of Estimates
Certain amounts included in the accompanying consolidated financial statements
and related footnotes reflect the use of estimates based on assumptions made by
management. These estimates are made using all information available to
management, and management believes that these estimates are as accurate as
possible as of the dates and for the periods that the financial statements are
presented. Actual amounts could differ from these estimates.
Inventory Valuation
Inventories are stated at the lower of cost or market, cost being determined
using the first-in, first-out (FIFO) method.
Property and Depreciation
Property, plant and equipment are carried at cost. Costs of major additions,
replacements and betterments are capitalized and maintenance and repairs which
do not improve or extend the life of the respective assets are charged to income
as incurred. When property is retired or otherwise disposed of, the cost of the
property and the related accumulated depreciation are removed from the accounts
and any resulting gains or losses are reflected in income for the period.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets. For income tax purposes, accelerated depreciation methods
are used.
Amortization of asset values under capital leases which transfer asset ownership
by the end of the lease term or contain bargain purchase options is provided
over the estimated useful asset lives. Amortization of asset values under other
capital leases and depreciation of leasehold improvements under operating leases
are provided over the terms of the related leases or the asset lives, if
shorter.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Pension Plan
The company's general funding policy is to contribute amounts deductible for
federal income tax purposes plus such additional amounts, if any, as the
company's actuarial consultants advise to be appropriate. Contributions are
intended to provide for benefits attributed to service to date and for those
expected to be earned in the future.
Net Income Per Common Share
Net income per common share is presented as basic and diluted earnings per
share. Net income per common share - Basic is based on the weighted average
number of common shares outstanding during the year. Net income per common share
- - Diluted is based on the weighted average number of common shares and dilutive
potential common shares outstanding during the year.
12
<PAGE>
Management's Analysis
Results of Operations
Net income for the fiscal year ended December 25, 1999 was $4,702,822 or $.60
per share. Included in net income for 1999 were two non-recurring charges.
During the first quarter the company discontinued forty-three route territories
in certain areas not achieving appropriate levels of profitability, assigning
most of those territories to certain other independent regional
distributorships. This decision resulted in an after-tax charge of $570,570 or
$.07 per share, primarily related to costs associated with the repurchase of
some owner/operator territories as well as employee severance payments and other
related costs. The second charge relates to the adoption of a new accounting
regulation, which required the write off of the remaining start-up costs
pertaining to the company's Oxford facility. This charge is reflected as a
cumulative effect of a change in accounting principle which resulted in an
after-tax charge to net income in the amount of $204,709 or $.03 per share.
After eliminating the effect of these two non-recurring charges, the comparable
1999 results were $5,478,101 or $.70 per share. Net income for the fiscal year
ended December 26, 1998 was $5,729,232 or $.72 per share. Net income for the
fiscal year ended December 27, 1997 was $6,048,240 or $.77 per share. Included
in net income for 1997 is an after-tax charge of $1,171,170 or $.15 per share
resulting from a settlement with the IRS concerning payroll taxes for the
company's independent owner/operators for tax years 1990-1997 and related
expenses. After eliminating the effect of the payroll tax settlement, the
comparable 1997 results were $7,219,410 or $.91 per share.
Net income amounts for 1998 and 1997 are restated to reflect a change in
inventory valuation from the last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method for the cost of sugar and packaging supply inventories.
These restatements were insignificant. All other amounts related to the change
have been restated where appropriate (see note 2).
Gross sales decreased in 1999 to $226,350,463 compared to $228,453,285 in 1998
representing a decrease of .9%. Diminished production capabilities during the
implementation of the first phase of the bakery modernization project, reduced
promotions, and competitive pressures caused a negative sales trend in the first
three quarters that reversed during the fourth quarter of 1999. Gross sales
increased to $228,453,285 in 1998 from $222,054,329 in 1997 representing an
increase of 2.9% resulting from an increase in volume due to geographic
expansion through new distribution agreements as well as a price increase
instituted during the third quarter of 1998. In 1997, gross sales increased to
$222,054,329 from $212,508,870 in 1996 representing an increase of 4.5% due to
price increases in effect for the entire year.
Net sales were $150,661,637 in 1999 compared to $150,729,377 in 1998. Sales
remained relatively flat because a decrease in promotional activity offset the
decrease in gross sales in 1999. Net sales increased to $150,729,377 in 1998
from $149,291,974 in 1997 representing an increase of 1.0%. The percentage
increase in net sales was lower than the percentage increase in gross sales due
to heavy promotional activity to support market expansion efforts and to
encourage acceptance of the price increase. In 1997, net sales increased to
$149,291,974 from $146,718,391 in 1996 representing an increase of 1.8%.
Relative to gross sales, this increase was lower due to the effect of an
increase in promotions and discounts.
Cost of sales as a percentage of gross sales was 42.3%, 40.8% and 40.9% in 1999,
1998 and 1997, respectively. The cost of sales percentage in 1999 increased as a
result of some permanent and temporary selling price reductions, inefficiencies
resulting from the adaptation to new production equipment, the sale of large
cake at a lower profit margin than our core products, and the write off of
certain obsolete packaging due to product changes. During 1999, the company also
refined the way it allocated various building expenses resulting in a decrease
in selling, general and administrative
13
<PAGE>
Results of Operations (continued)
expenses and a corresponding increase in cost of sales. The slight improvement
in cost of sales in 1998 compared to 1997 resulted from a decrease in ingredient
costs from more in-house production at Tasty Baking Oxford, Inc. (Oxford) and
the price increase instituted during the third quarter of 1998. Most of the
improvements were offset by an increase in labor, packaging and utility costs.
An improvement in gross margin in 1997 compared to 1996 was due to further
improvements in manufacturing efficiencies, moderating commodity costs, reduced
utility costs, and price increases in effect for the entire year.
Selling, general and administrative expenses in 1999 decreased $2,995,588 or
7.1% compared to 1998. Most of the decrease was in selling expense resulting
from savings related to the route restructure. In addition, amounts spent on new
package designs, consulting fees and handheld computer equipment repairs in 1999
decreased. Selling expense also benefited from the re-allocation of various
building expenses to cost of sales. In 1998, selling, general and administrative
expenses increased $2,091,570 or 5.2% over 1997. The increase came primarily
from an increase in selling expenses associated with the expansion into new
geographic regions, an increase in payroll taxes generated from the IRS ruling
classifying certain owner/operators as statutory employees, and costs associated
with the installation of a new computer system. Shipping costs also increased
relative to the increase in sales but this increase was offset by a decrease in
advertising. In 1997, selling, general and administrative expenses increased
$1,576,509 or 4.1% over 1996. The principal reasons for the increase were higher
advertising costs, an increase in selling expense, and the additional expenses
incurred from operating the new Oxford facility. Oxford was acquired on July 1,
1996 and became operational during the second quarter of 1997. Advertising costs
increased due to a television advertising campaign undertaken in the first half
of 1997 and selling expense increased due to costs associated with regional
route re-alignment and higher trade show exhibition costs. These increases were
partially offset by a decrease in administrative costs.
Depreciation expense in 1999 increased $365,652 compared to 1998 due to the
implementation of the bakery modernization project and new computer system.
Depreciation expense in 1998 decreased $564,520 or 7.8% compared to 1997 due to
major lines of production equipment becoming fully depreciated. Depreciation
expense in 1997 remained relatively unchanged compared to 1996 as the effect of
certain production equipment that became fully depreciated in 1996 was offset by
additional depreciation expense on new equipment at the Oxford facility.
Other income, net decreased by $325,779 in 1999 compared to 1998 as a result of
a decrease in interest income from owner/operators and other miscellaneous
income. Other income, net remained relatively unchanged for 1998 versus 1997. In
1997, other income, net decreased compared to 1996 by $135,341 as a result of a
decrease in rental income that was partially offset by an increase in interest
income.
Interest expense in 1999 increased compared to 1998 principally due to higher
average borrowing levels. Interest expense in 1998 increased compared to 1997 as
a result of higher average borrowing levels. Interest expense in 1997 increased
compared to 1996 as a result of higher average borrowing levels and higher
average interest rates.
The effective tax rates were 34%, 34.1% and 37.7% in 1999, 1998 and 1997,
respectively, which compare to a federal statutory rate of 34%. The 1999 and
1998 effective rates were essentially the same as the federal statutory rate as
a result of state income taxes being offset by tax benefits arising from passive
income and certain permanent differences. In 1997, the principal reason for the
difference between the effective rate and statutory rate was the effect of state
income taxes partially offset by benefits related to certain permanent
differences.
14
<PAGE>
Year 2000 Disclosure
The company has completed its assessment of potential consequences due to the
change to the year 2000. The company has determined that this change did not
appear to have an impact on operations and does not anticipate that this change
will have any impact going forward. Immaterial amounts were spent on upgrading
certain equipment to be compliant and those upgrades appear to have been
successful. It was not necessary to utilize any contingency plans and the
company does not anticipate the need for any contingency plans in the future.
Financial Condition
Historically, the company's ability to generate sufficient amounts of cash has
primarily come from operations. Bank borrowings, under various lines of credit
arrangements, are used to supplement cash flow from operations during periods of
cyclical shortages.
Net cash from operating activities in 1999 increased by $7,065,851 to
$15,498,932 from the 1998 amount of $8,433,081. A majority of the increase can
be attributed to a decrease in accounts receivable during 1999 relative to an
increase during 1998. The increase can also be attributed to payment of the IRS
settlement in the first quarter of 1998, which was accrued for in 1997 and an
increase in accrued income taxes. These favorable changes were slightly offset
by the decrease in net income and the change in the deferred tax asset. Net cash
from operating activities was used to fund dividend payments of $3,755,847 and
the majority of the capital expenditures.
Capital expenditures totaled $14,037,837 in 1999. These expenditures were made
primarily to upgrade the bakery's production equipment and for the new computer
system. Bank borrowings and proceeds from the excess of owner/operator loan
payments over new loans granted funded the balance of the capital expenditures
not funded by operating cash.
Net cash from operating activities in 1998 decreased by $4,134,570 to $8,433,081
from the 1997 amount of $12,567,651. The decrease is primarily the result of
payment of the IRS settlement accrued for in 1997, an unfavorable change in
accounts receivable and inventories, and a decrease in net income. These changes
were partially offset by favorable changes in accrued income taxes and accrued
payroll relative to 1997. Net cash from operating activities was used to fund
dividend payments of $3,748,758 and part of the capital expenditures.
Capital expenditures totaled $11,328,167 in 1998. These expenditures were made
primarily to upgrade the bakery's production equipment and for the new computer
system. Bank borrowings and proceeds from the excess of owner/operator loan
payments over new loans granted funded the balance of the capital expenditures
not funded by operating cash.
Net cash from operating activities in 1997 decreased by $3,268,120 to
$12,567,651 from the 1996 amount of $15,835,771. This decrease was primarily due
to an unfavorable change in accrued income taxes due to the payment of the 1996
balance and an increase in estimated payments during 1997. There were also
unfavorable changes in receivables and inventories partially offset by favorable
changes in accrued pensions, accounts payable and other current liabilities,
which included the amount accrued for the IRS settlement. Net cash from
operating activities was used to fund dividend payments of $3,544,121 and most
of the capital expenditures.
Capital expenditures totaled $10,528,359 in 1997 of which approximately
$5,900,000 can be attributed to the new Oxford facility. The remaining capital
expenditures continued the upgrade of the bakery's production equipment and
began the upgrade of the computer system for the company and its subsidiaries.
The balance of the capital expenditures, not funded by operating cash and the
excess of owner/operator loan proceeds, came from bank borrowings.
The company anticipates that cash flow from operating activities will improve in
2000, and with the continued availability of bank lines of credit, the Revolving
Credit Agreement and other long-term financing, sufficient cash will be
available for planned capital expenditures and other operating and financial
requirements.
15
<PAGE>
Quarterly Summary (Unaudited)
Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year
1999 (a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross sales $57,146 $56,769 $53,765 $58,670 $226,350
Net sales 37,853 38,504 35,634 38,671 150,662
Gross profit (after depreciation) 12,435 12,529 10,562 12,423 47,949
Net income 322 1,392 724 2,265 4,703
Per share of common stock:
Net income:
Basic .04 .18 .09 .29 .60
Diluted .04 .18 .09 .29 .60
Cash dividends .12 .12 .12 .12 .48
Market prices:
High 15.38 13.13 12.75 13.38 15.38
Low 11.50 11.13 10.31 8.44 8.44
1998
Gross sales $57,161 $56,933 $57,265 $57,094 $228,453
Net sales 38,320 38,361 36,824 37,224 150,729
Gross profit (after depreciation) 12,744 12,465 12,377 13,259 50,845
Net income 1,641 1,014 1,333 1,741 5,729
Per share of common stock:
Net income:
Basic .21 .13 .17 .22 .73
Diluted .21 .13 .17 .22 .72
Cash dividends .12 .12 .12 .12 .48
Market prices:
High 22.38 22.25 17.31 17.13 22.38
Low 16.88 15.19 14.31 14.25 14.25
</TABLE>
Each quarter consists of thirteen weeks. The market prices of the company's
stock reflect the high and low price by quarter as traded on the New York Stock
Exchange. The approximate number of holders of record of the company's common
stock (par value $.50 per share) as of February 14, 2000 was 3,200.
(a) Includes an after tax charge to net income in the first quarter of $570,570
or $.07 per share resulting from a route restructuring. Also includes an
after tax charge of $204,709 or $.03 per share related to an accounting
change that required the write-off of start-up costs.
16
<PAGE>
Five Year Selected Financial Data(a)
<TABLE>
<CAPTION>
All amounts presented are in thousands except for per share amounts.
<S> <C> <C> <C> <C> <C>
1999(b) 1998 1997(c) 1996 1995(d)(e)
- ---------------------------------------------------------------------------------------------------------------
Operating Results
Gross Sales $226,350 $228,453 $222,054 $212,509 $205,180
Net Sales $150,662 $150,729 $149,292 $146,718 $141,831
Net Income $ 4,703 $ 5,729 $ 6,048 $ 6,322 $ 5,689
- ---------------------------------------------------------------------------------------------------------------
Per Share Amounts
Net Income:
Basic $ .60 $ .73 $ .78 $ .82 $ .74
Diluted $ .60 $ .72 $ .77 $ .82 $ .74
Cash Dividends $ .48 $ .48 $ .456 $ .448 $ .448
Shareholders' Equity $ 5.81 $ 5.67 $ 5.37 $ 5.06 $ 4.68
- ---------------------------------------------------------------------------------------------------------------
Financial Position
Working Capital $ 14,406 $ 15,830 $ 10,737 $ 10,432 $ 14,199
Total Assets $111,753 $101,744 $ 94,572 $ 87,700 $ 85,558
Long-term Obligations $ 21,060 $ 13,761 $ 8,360 $ 6,434 $ 6,230
Shareholders' Equity $ 45,422 $ 44,357 $ 41,848 $ 39,179 $ 36,193
Shares of Common Stock Outstanding 7,823 7,822 7,791 7,742 7,731
- ---------------------------------------------------------------------------------------------------------------
Statistical Information
Capital Expenditures, Net $ 10,170 $ 10,155 $ 10,439 $ 12,479 $ 3,685
Depreciation $ 7,016 $ 6,650 $ 7,215 $ 7,268 $ 7,463
Average Common Shares Outstanding:
Basic 7,824 7,808 7,770 7,734 7,690
Diluted 7,865 7,953 7,896 7,734 7,701
<FN>
(a) Restated where appropriate to reflect a change from the last-in, first-out
(LIFO) method to the first-in, first-out (FIFO) method of valuing packaging
and sugar inventories (see note 2).
(b) Net income and per share amounts include an after-tax charge to net income
of $570,570 or $.07 per share resulting from a route restructuring. Also
included is an after tax charge of $204,709 or $.03 per share related to an
accounting change that required the write-off of start-up costs. Long-term
obligations reflect the renewal of a capital lease with the trustees of the
company pension plan (see note 6).
(c) Net income and per share amounts include an after-tax charge of $1,171,170
or $.15 per share resulting from a settlement with the IRS concerning
payroll taxes for the company's independent owner/operators for tax years
1990-1997 and related expenses.
(d) Amortization of the gain on sale of company routes resulted in increased
net income of $1,752,000 or $.22 per share in 1995.
(e) Net income and per share amounts include after-tax charges of $550,000 or
$.07 per share for severance costs and $551,000 or $.07 per share resulting
from a remeasuring of the company's deferred tax assets and liabilities.
</FN>
</TABLE>
17
<PAGE>
Consolidated Financial Statements
Tasty Baking Company and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Statements of Operations and Retained Earnings
<S> <C> <C> <C>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
- --------------------------------------------------------------------------------------------------------------------
Operations
- -----------------------------------------------------------
Gross Sales $ 226,350,463 $ 228,453,285 $ 222,054,329
Less discounts and allowances (75,688,826) (77,723,908) (72,762,355)
---------------------------------------------------
Net sales 150,661,637 150,729,377 149,291,974
---------------------------------------------------
Costs and expenses:
- -----------------------------------------------------------
Cost of sales 95,696,570 93,233,974 90,786,406
Depreciation 7,016,129 6,650,477 7,214,997
Selling, general and administrative 39,294,631 42,290,219 40,198,649
Route restructure and payroll tax settlement charges 950,000 -- 1,950,000
Interest expense 1,124,469 745,281 536,820
Provision for doubtful accounts 428,864 716,000 499,787
Other income, net (1,281,041) (1,606,820) (1,607,522)
---------------------------------------------------
143,229,622 142,029,131 139,579,137
---------------------------------------------------
Income before provision for income taxes 7,432,015 8,700,246 9,712,837
---------------------------------------------------
Provision for income taxes:
- -----------------------------------------------------------
Federal 3,113,669 2,229,187 3,174,111
State 319,140 240,716 878,690
Deferred (908,325) 501,111 (388,204)
---------------------------------------------------
2,524,484 2,971,014 3,664,597
---------------------------------------------------
Income before cumulative effect of a change
in accounting principle 4,907,531 5,729,232 6,048,240
Cumulative effect of a change in accounting principle
for start-up costs (204,709) -- --
---------------------------------------------------
Net income 4,702,822 5,729,232 6,048,240
- -----------------------------------------------------------
Retained Earnings
- -----------------------------------------------------------
Balance, beginning of year 27,021,836 25,041,362 22,537,243
Cash dividends paid on common shares
($.48 per share in 1999 and 1998, $.456 per share in 1997) (3,755,847) (3,748,758) (3,544,121)
---------------------------------------------------
Balance, end of year $ 27,968,811 $ 27,021,836 $ 25,041,362
===================================================
Per share of common stock:
Income before cumulative effect of a change
in accounting principle:
Basic $ .63 $ .73 $ .78
Diluted $ .62 $ .72 $ .77
Cumulative effect of a change in accounting
principle for start-up costs:
Basic and Diluted $ (.03) -- --
---------------------------------------------------
Net income:
Basic $ .60 $ .73 $ .78
---------------------------------------------------
Diluted $ .60 $ .72 $ .77
===================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
18
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used for) operating activities
- --------------------------------------------------------------------
Net income $ 4,702,822 $ 5,729,232 $ 6,048,240
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,016,129 6,650,477 7,214,997
Provision for doubtful accounts 428,864 716,000 499,787
Cumulative effect of a change in accounting principle 204,709 -- --
Deferred taxes (908,325) 501,111 (388,204)
Other 1,286,084 1,227,116 864,332
Changes in assets and liabilities:
Decrease (increase) in receivables 1,102,979 (3,269,165) (2,198,607)
Decrease (increase) in inventories 201,501 (975,626) (409,160)
Decrease (increase) in prepayments and other 209,213 (94,620) 48,591
Increase (decrease) in accrued payroll, accrued income taxes,
accounts payable and other current liabilities 1,254,956 (2,051,444) 887,675
------------------------------------------------
Net cash from operating activities 15,498,932 8,433,081 12,567,651
------------------------------------------------
Cash flows from (used for) investing activities
- --------------------------------------------------------------------
Proceeds from owner/operator loan repayments 4,021,428 3,229,272 3,368,285
Purchase of property, plant and equipment (14,037,837) (11,328,167) (10,528,359)
Loans to owner/operators (3,856,500) (2,853,097) (4,320,365)
Other 49,988 43,589 55,947
------------------------------------------------
Net cash used for investing activities (13,822,921) (10,908,403) (11,424,492)
------------------------------------------------
Cash flows from (used for) financing activities
- --------------------------------------------------------------------
Dividends paid (3,755,847) (3,748,758) (3,544,121)
Payment of long-term debt (3,153,651) (1,573,316) (1,645,685)
Net increase (decrease) in short-term debt (450,000) 300,000 900,000
Additional long-term debt 6,000,000 7,000,000 3,500,000
Other 16,110 122,150 161,398
------------------------------------------------
Net cash from (used for) financing activities (1,343,388) 2,100,076 (628,408)
------------------------------------------------
Net increase (decrease) in cash 332,623 (375,246) 514,751
Cash, beginning of year 372,871 748,117 233,366
------------------------------------------------
Cash, end of year $ 705,494 $ 372,871 $ 748,117
================================================
Supplemental cash flow information
Cash paid during the year for:
- --------------------------------------------------------------------
Interest $ 1,125,763 $ 866,619 $ 591,090
================================================
Income taxes $ 1,714,027 $ 2,067,760 $ 5,947,420
================================================
Noncash investing and financing activity:
- --------------------------------------------------------------------
Capital lease renewal $ 4,049,406 -- --
================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998
- ---------------------------------------------------------------------------------------------------------
Assets
- -----------------------------------------------
Current Assets:
- -----------------------------------------------
<S> <C> <C>
Cash $ 705,494 $ 372,871
Receivables, less allowance of $2,874,088
and $2,849,538, respectively 19,682,733 21,214,576
Inventories 4,505,779 4,707,280
Deferred income taxes 2,418,107 2,021,509
Prepayments and other 87,105 296,318
-----------------------------
Total current assets 27,399,218 28,612,554
-----------------------------
Property, plant and equipment:
- -----------------------------------------------
Land 1,097,987 1,097,987
Buildings and improvements 32,695,695 30,066,377
Machinery and equipment 136,600,926 128,198,745
-----------------------------
170,394,608 159,363,109
Less accumulated depreciation and amortization 110,936,937 110,971,965
-----------------------------
59,457,671 48,391,144
-----------------------------
Other assets:
- -----------------------------------------------
Long-term receivables 10,681,972 10,851,320
Deferred income taxes 10,909,070 10,452,681
Spare parts inventory 2,930,346 2,665,399
Miscellaneous 374,664 771,082
-----------------------------
24,896,052 24,740,482
-----------------------------
$111,752,941 $101,744,180
=============================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998
- ---------------------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------
Current Liabilities:
- ----------------------------------------------------------------------------
<S> <C> <C>
Current portion of long-term debt $ -- $ 273,053
Current obligations under capital leases 196,240 325,873
Notes payable, banks 750,000 1,200,000
Accounts payable 4,120,600 4,204,211
Accrued payroll and employee benefits 5,881,791 6,687,408
Accrued income taxes 1,723,385 --
Other 320,929 91,600
-----------------------------
Total current liabilities 12,992,945 12,782,145
-----------------------------
Long-term debt, less current portion 17,000,000 13,500,000
-----------------------------
Long-term obligations under capital leases, less current portion 4,059,724 261,283
-----------------------------
Accrued pensions and other liabilities 13,950,361 12,683,231
-----------------------------
Post-retirement benefits other than pensions 18,328,367 18,160,785
-----------------------------
Shareholders' Equity
- ----------------------------------------------------------------------------
Common stock, par value $.50 per share, and entitled to one vote per share:
Authorized 15,000,000 shares, issued 9,116,483 shares 4,558,243 4,558,243
Capital in excess of par value of stock 29,778,768 29,762,210
Retained earnings 27,968,811 27,021,836
-----------------------------
62,305,822 61,342,289
Less:
- ----------------------------------------------------------------------------
Treasury stock, at cost:
1,293,135 shares and 1,294,026 shares, respectively 16,408,808 16,372,219
Management Stock Purchase Plan receivables and deferrals 475,470 613,334
-----------------------------
45,421,544 44,356,736
-----------------------------
$111,752,941 $101,744,180
=============================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
21
<PAGE>
Consolidated Statements of Changes in Capital Accounts
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998 Dec. 27, 1997
- --------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance, beginning of year 9,116,483 $4,588,243 9,116,483 $4,558,243 9,111,358 $4,555,680
Issuances:
Stock Option Plan -- -- -- -- 5,125 2,563
-------------------------------------------------------------------------------------
Balance, end of year 9,116,483 $4,588,243 9,116,483 $4,558,243 9,116,483 $4,558,243
=====================================================================================
Capital in Excess of
Par Value of Stock:
Balance, beginning of year $29,762,210 $29,337,938 $28,831,377
Issuances:
Management Stock
Purchase Plan 1,308 116,975 20,988
Stock Option Plan 9,221 5,031 466,192
Tax benefits related to
Management Stock
Purchase Plan and
Stock Option Plan 6,029 302,266 19,381
-------------------------------------------------------------------------------------
Balance, end of year $29,778,768 $29,762,210 $29,337,938
=====================================================================================
Treasury Stock:
Balance, beginning of year 1,294,026 $16,372,219 1,325,721 $16,738,364 1,369,317 $16,329,055
Management Stock
Purchase Plan:
Reissued (4,640) (58,167) (23,815) (288,607) (4,919) (30,658)
Reacquired 7,180 101,645 3,245 39,580 1,847 14,743
Net shares reacquired
(reissued) in
connection with:
Stock Option Plan (3,431) (6,889) (11,125) (117,118) (41,608) 405,441
5 for 4 Stock split in
1997 - fractional shares -- -- -- -- 1,084 19,783
-------------------------------------------------------------------------------------
Balance, end of year 1,293,135 $16,408,808 1,294,026 $16,372,219 1,325,721 $16,738,364
=====================================================================================
Management Stock Purchase
Plan Receivables and Deferrals:
Balance, beginning of year $613,334 $351,250 $416,368
Common stock issued 59,475 405,581 51,647
Common stock repurchased (97,046) (43,370) (16,489)
Note payments and
amortization of
deferred compensation (100,293) (100,127) (100,276)
-------------------------------------------------------------------------------------
Balance, end of year $475,470 $613,334 $351,250
=====================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
22
<PAGE>
Notes to Consolidated Financial Statements
1. Route Restructure and Payroll Tax Settlement Charges:
During the first quarter of 1999, the company discontinued forty-three route
territories in certain areas not achieving appropriate levels of profitability,
assigning most of those territories to certain other independent regional
distributorships. As a result, the company incurred a charge of $950,000
resulting in a reduction in net income of $570,570 or $.07 per share, primarily
relating to costs associated with the repurchase of some owner/operator
territories as well as severance payments and other related costs. All the costs
accrued under this charge have been satisfied.
During the fourth quarter of 1997, the company incurred a pre-tax charge of
$1,950,000 which represents a settlement with the IRS concerning payroll taxes
for the company's independent owner/operators for tax years 1990-1997 and
related expenses. The after-tax effect of this charge resulted in a reduction of
net income of $1,171,170 or $.15 per share. All amounts relative to this charge
were paid in 1998.
2. Inventories:
Classification
Inventories are classified as follows:
Dec. 25, 1999 Dec. 26, 1998
- ----------------------------------------------------------------------
Finished goods $744,336 $1,412,720
Work in progress 568,416 621,459
Raw materials and supplies 3,193,027 2,673,101
--------------------------------
$4,505,779 $4,707,280
================================
Change in Accounting Method
During the third quarter of 1999, the company changed its method of determining
the cost of its sugar and packaging supply inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. The change was
made because the majority of the company's peer group uses the FIFO method, and
the LIFO method had been adopted when the company conducted business in two
different segments and had significant levels of volatile inventories related to
the other segment. Recently, LIFO inventories have remained relatively stable or
have been decreasing and the calculation of LIFO versus FIFO did not materially
impact the financial statements. All previously reported results have been
restated to reflect the retroactive application of this accounting change as
required by generally accepted accounting principles. The aggregate effect of
this restatement was an increase in beginning retained earnings as of December
28, 1996 of $272,000. The effect of this change was to increase net income in
1998 by $2,000 and decrease net income in 1997 by $19,000. There was no effect
on net income during 1999.
3. Long-Term Receivables and Distribution Routes:
The majority of the company's sales distribution routes are owned by independent
owner/operators who purchase the exclusive right to sell and distribute
Tastykake products in defined geographical territories. The company maintains a
wholly-owned subsidiary to assist in financing route purchase activities if
requested by new owner/operators. Most route purchase activities involve
transactions between existing and new independent owner/operators. At December
25, 1999 and December 26, 1998, notes receivable of $12,115,000 and $12,669,000,
respectively, are included in current and long-term receivables in the
accompanying consolidated balance sheets.
4. Notes Payable, Banks:
The company has credit arrangements with various banks under which it may borrow
up to $41,000,000 primarily at or below the prime rate of interest. Of the
$41,000,000, $11,000,000 is designated for short-term borrowings, while
$30,000,000 is for use under a Revolving Credit Agreement (see Note 5). The
company has agreed informally with the banks to provide compensating balances,
or fees in lieu thereof; however, withdrawal of funds is not restricted.
Notes payable of $750,000 were outstanding at December 25, 1999 at an interest
rate of 6.05%. Notes payable of $1,200,000 were outstanding at December 26, 1998
at an interest rate of 5.15%. The average outstanding borrowing during 1999 was
$2,014,000 ($1,987,000 in 1998) and the average interest rate was 5.42% (5.85%
in 1998), calculated on the basis of the average daily balance. The maximum
short-term borrowings by the company at any period end during 1999 aggregated
$4,300,000 ($2,700,000 in 1998).
23
<PAGE>
5. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Dec. 25, 1999 Dec. 26, 1998
Revolving Credit Agreement, with interest at or below
the prime rate (6.92% at December 25, 1999) $17,000,000 $13,500,000
Term Loan with interest at 8%, $4,374 principal and interest payments due
monthly. A final payment of $253,834 was made August 18, 1999. -- 273,053
-----------------------------------
17,000,000 13,773,053
Less current portion -- 273,053
-----------------------------------
$17,000,000 $13,500,000
===================================
</TABLE>
In 1989, the company entered into a Revolving Credit Agreement (Agreement). On
April 30, 1999, the Agreement was amended to permit a $10,000,000 increase in
borrowings from $20,000,000 to $30,000,000. Borrowings under the Agreement bear
interest at an annual rate equal to the prime rate, a CD rate, a LIBOR rate or a
money market rate at the company's option. Under the Agreement, the company may
borrow up to $30,000,000 until September 2002. However, the Agreement contains
provisions which effectively allow the revolving credit period and maturity to
be extended indefinitely upon approval of the bank. The Agreement, as amended,
contains restrictive covenants which include provisions for maintenance of
minimum earnings to funded debt, fixed charge coverage, current ratio and
tangible net worth, and restrictions on total liabilities, guarantees, loans,
investments and subsidiary debt.
The following schedule of future long-term debt principal payments as of
December 25, 1999 is based on the stated maturity dates of the various long-term
borrowings and does not reflect future extensions or refinancings.
2002 $17,000,000
-----------
Total principal payments $17,000,000
===========
6. Obligations Under Capital Leases:
<TABLE>
<CAPTION>
Obligations under capital leases consist of the following:
Dec. 25, 1999 Dec. 26, 1998
<S> <C> <C>
Capital lease obligation, with interest at 11%, payable in monthly installments
of $46,000 through June 2015 $3,994,681 $254,771
Industrial development mortgage, with interest at 81/2%, payable in
monthly installments of $8,052 through February 2003. 261,283 332,385
---------------------------------
4,255,964 587,156
Less current portion 196,240 325,873
---------------------------------
$4,059,724 $261,283
=================================
</TABLE>
On July 1, 1999, the company exercised its option to renew its lease for the
2801 Hunting Park Avenue building with the Tasty Baking Company Pension Plan for
an additional 15 years. This building contains the company's principal
production facilities. The initial lease term expired on June 30, 1999. The
terms and conditions of the original lease will continue during the renewal
period. In accordance with generally accepted accounting principles, the company
remeasured its asset and related obligation based on the present value of the
future minimum lease payments during the renewal period. This remeasurement is
reflected in the company's financial statements at December 25, 1999 and
resulted in an increase of $4,049,406 to both the fixed asset and the
corresponding obligation at July 1, 1999.
24
<PAGE>
7. Commitments and Contingencies:
The company leases certain plant and distribution facilities, machinery and
automotive equipment under noncancelable lease agreements. The company expects
that in the normal course of business, leases that expire will be renewed or
replaced by other leases. Included therein is a lease with the Trustees of the
Tasty Baking Company Pension Plan for property contributed to the plan. The net
annual rental is subject to adjustment every three years to provide fair market
rental to the Pension Plan and, accordingly, the net annual rental was adjusted
effective July 1, 1999. The lease was renewed on July 1, 1999 for five
additional three year periods. In addition, the company has an option to
purchase the property at any time at its then fair market value. Property, plant
and equipment relating to capital leases was $6,549,000 at December 25, 1999 and
$5,801,000 at December 26, 1998 with accumulated amortization of $1,944,000 and
$4,956,000, respectively. Depreciation and amortization of assets recorded under
capital leases was $289,000 in 1999 and $267,000 in 1998 and 1997.
The following is a schedule of future minimum lease payments as of December 25,
1999:
<TABLE>
<CAPTION>
Noncancelable
Capital Leases Operating Leases
- -----------------------------------------------------------------------------------------
<S> <C> <C>
2000 $648,627 $1,170,102
2001 648,627 823,554
2002 648,627 435,793
2003 560,053 324,482
2004 552,000 128,327
Later years 5,244,000 31,407
-----------------------------
Total minimum lease payments $8,301,934 $2,913,665
------------
Less interest portion of payments 4,045,970
-----------
Present value of future minimum lease payments $4,255,964
===========
</TABLE>
Rental expense was approximately $2,000,000 in 1999, $1,826,000 in 1998 and
$1,396,000 in 1997.
In connection with a workers compensation insurance policy, the company has
obtained a Standby Letter of Credit in the amount of $1,900,000 which is
required by the insurance company in order to guarantee future payment of
premiums.
The company and its subsidiaries are involved in certain legal and regulatory
actions, all of which have arisen in the ordinary course of the company's
business. The company is unable to predict the outcome of these matters, but
does not believe that the ultimate resolution of such matters will have a
material adverse effect on the consolidated financial position or results of
operations of the company.
25
<PAGE>
8. Pension Costs:
The company participates in a funded noncontributory pension plan providing
retirement benefits for substantially all employees. Benefits under this plan
generally are based on the employees' years of service and compensation during
the years preceding retirement. Net pension gains and losses in excess of 10% of
the greater of the projected benefit obligation or the market value of the plan
assets ("the corridor") are recognized in income in the year of occurrence.
<TABLE>
<CAPTION>
The components of pension cost are summarized as follows:
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the year $1,646,000 $1,439,000 $1,292,000
Interest cost on projected benefit obligation 5,114,000 4,913,000 4,910,000
Expected return on plan assets (6,077,000) (5,946,000) (5,469,000)
Prior service cost amortization (30,000) (30,000) (30,000)
Transition amount amortization (339,000) (339,000) (339,000)
----------------------------------------------------------
Net amount charged to income $314,000 $37,000 $364,000
==========================================================
</TABLE>
The following table sets forth the change in projected benefit obligation,
change in plan assets, funded status of the pension plan and net liability
recognized in the company's balance sheet at December 25, 1999 and December 26,
1998:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
Change in Projected Benefit Obligation
- -------------------------------------------------
<S> <C> <C>
Projected benefit obligation, beginning of year $75,139,000 $72,376,000
Service cost 1,646,000 1,439,000
Interest cost 5,114,000 4,913,000
Actuarial (gain)loss (5,796,000) 785,000
Benefits paid (4,459,000) (4,374,000)
---------------------------------------
Projected benefit obligation, end of year $71,644,000 $75,139,000
=======================================
Change in Plan Assets
- -------------------------------------------------
Fair value of plan assets, beginning of year $69,889,000 $67,806,000
Actual return on plan assets 5,049,000 6,457,000
Benefits paid (4,459,000) (4,374,000)
---------------------------------------
Fair value of plan assets, end of year $70,479,000 $69,889,000
=======================================
Net Liability Recognized in Balance Sheet
- -------------------------------------------------
Funded status of plan, end of year $(1,165,000) $(5,250,000)
Unrecognized actuarial gain (7,398,000) (2,631,000)
Unrecognized prior service income (104,000) (134,000)
Unrecognized net transition asset (678,000) (1,016,000)
---------------------------------------
Net liability recognized in balance sheet, end of year $(9,345,000) $(9,031,000)
=======================================
</TABLE>
The actuarial present value of benefits and projected benefit obligations was
determined using a discount rate of 7.50% for fiscal year 1999, 6.75% for fiscal
year 1998 and 7.0% for fiscal year 1997. The expected long-term rate of return
on assets was 9% and the rate of compensation increase used to measure the
projected benefit obligation was 6% for fiscal years 1999, 1998 and 1997. Plan
assets are invested in a diverse portfolio that primarily consists of equity and
debt securities as well as certain real property with subsequent improvements
and additions thereto.
26
<PAGE>
9. Postretirement Benefits Other than Pensions:
In addition to providing pension benefits, the company also provides certain
unfunded health care and life insurance programs for substantially all retired
employees. These benefits are provided through contracts with insurance
companies and health service providers. Effective January 1, 1996, the company
amended its plan to provide health care benefits to retired employees' spouses.
As a result, the unrecognized prior service cost amounted to $1,559,217 which is
being amortized over a five year period using the straight line method. The net
periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Service cost $314,000 $321,000 $303,000
Interest cost 973,000 924,000 901,000
Net amortization and deferral 91,000 (58,000) (220,000)
----------------------------------------------------------
Net amount charged to income $1,378,000 $1,187,000 $984,000
==========================================================
</TABLE>
The following table sets forth the change in projected benefit obligation,
funded status of the postretirement benefit plan and the net liability
recognized in the company's balance sheet at December 25, 1999 and December 26,
1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Change in Projected Benefit Obligation
- ----------------------------------------------------
Projected benefit obligation, beginning of year $14,180,000 $13,210,000
Service cost 314,000 321,000
Interest cost 973,000 924,000
Actuarial (gain) loss (590,000) 881,000
---------------------------------------
Benefits paid (1,210,000) (1,156,000)
=======================================
Projected benefit obligation, end of year $13,667,000 $14,180,000
Net Liability Recognized in Balance Sheet
- ----------------------------------------------------
Funded status of plan, end of year $(13,667,000) $(14,180,000)
Unrecognized net gain (4,997,000) (4,623,000)
Unrecognized prior service cost 336,000 642,000
---------------------------------------
Net liability recognized in balance sheet, end of year $(18,328,000) $(18,161,000)
=======================================
</TABLE>
The accumulated postretirement benefit obligation was determined using a
weighted average discount rate of 7.5% in 1999, 6.75% in 1998 and 7.00% in 1997,
and an assumed compensation increase rate of 6% was used for fiscal years ended
1999, 1998 and 1997. For 1999, the health care cost trend rates are anticipated
to be 6.79% and 6.34% for indemnified health plans and HMO-type health plans,
respectively, gradually declining to 5% in five years and remaining at that
level thereafter. The health care cost trend rate assumptions have a significant
effect on the amounts reported. For example, a 1% increase in the health care
trend rate would increase the accumulated postretirement benefit obligation by
$426,000 and $410,000 in 1999 and 1998, respectively and the net periodic cost
by $56,000, $53,000 and $52,000 in 1999, 1998 and 1997, respectively. A 1%
decrease in the healthcare trend rate would decrease the accumulated
postretirement benefit obligation by $376,000 and $373,000 in 1999 and 1998,
respectively and the net periodic cost by $52,000 and $47,000 in 1999 and 1998,
respectively.
10. Thrift Plan:
The Tasty Baking Company Thrift Plan (the Plan) permits participants to make
contributions to the Plan on a pre-tax salary reduction basis in accordance with
the provision of Section 401(k) of the Internal Revenue Code. The company
contributes $1.00 for each $1.00 contributed by a participant up to a specified
limit. Company contributions charged against income totaled $340,313 in 1999,
$356,525 in 1998 and $355,077 in 1997. The Plan is administered under a Section
401(k) prototype plan sponsored by the Dreyfus Corporation. Under the Plan, the
company's contributions are invested in Tasty Baking Company common stock, and
participants may choose from a selection of mutual fund options offered by the
Dreyfus Corporation for investment of their contributions. The company had
188,527 shares of its common stock reserved for possible issuance under the Plan
at December 25, 1999.
27
<PAGE>
11. Management Stock Purchase Plan:
The Management Stock Purchase Plan provides that common shares may be sold to
management employees from time to time at prices designated by the Board of
Directors (not less than 50% of the fair market value at date of grant) and
under certain restrictions and obligations to resell to the company. During 1999
and 1998, a total of 4,640 and 23,815 shares of common stock was sold at 50% of
fair market value at date of grant. The aggregate sales price of these shares
was $29,616 and $203,013, respectively, for which collateral judgment notes were
obtained to be paid in equal quarterly installments (not to exceed 40) with
interest on the unpaid balance at 3.875% and 4% in 1999, and 4.25% in 1998. At
December 25, 1999, a total of 931,567 common shares was authorized under the
Plan, of which 213,323 shares remain available for issuance.
For accounting purposes, the difference between the fair market value of the
stock at the date of grant and the purchase price, $29,859 in 1999 and $202,567
in 1998, represents compensation. The compensation is deferred and, together
with the notes receivable, is shown as a deduction from shareholders' equity.
The deferred compensation is amortized over a ten year period or the period the
employees perform services, whichever is less. Amortization charged to income
amounted to $54,711, $45,919 and $41,526, in 1999, 1998 and 1997, respectively.
In accordance with an Internal Revenue Service regulation, the company includes
both the dividends paid on shares restricted under the Plan, and the difference
between the purchase price of the stock at the date of the grant and the fair
market value at the date the Plan restrictions lapse as employee compensation
for federal income tax purposes. The tax benefits relating to the difference
between the amounts deductible for federal income taxes over the amounts charged
to income for book purposes have been credited to capital in excess of par value
of stock.
12. Stock Option Plans:
Under the terms of the 1997 Long Term Incentive Plan, options to purchase a
total of 375,000 common shares may be granted to key executives of the company.
Options become exercisable in five equal installments beginning on the date of
grant until fully exercisable after four years. The option price is determined
by the Board and, in the case of incentive stock options, will be no less than
the fair market value of the shares on the date of grant. Options lapse at the
earlier of the expiration of the option term specified by the Board (not more
than ten years in the case of incentive stock options) or three months following
the date on which employment with the company terminates. The company also has
options outstanding under the 1994 Long Term Incentive Plan, the 1991 Long Term
Incentive Plan and the 1985 Stock Option Plan, the terms and conditions of which
are similar to the 1997 Long Term Incentive Plan.
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 488,750 $13.31 499,875 $13.26 508,750 $10.95
Less: Exercises (15,625) 13.94 (11,125) 10.98 (165,375) 10.93
Forfeitures (24,625) 13.39 -- -- -- --
--------------------------------------------------------------------------------
448,500 488,750 343,375
Granted 136,500 11.50 -- -- 156,500 18.31
--------------------------------------------------------------------------------
Outstanding at end of year 585,000 $12.86 488,750 $13.31 499,875 $13.26
================================================================================
Options exercisable at year-end 402,600 327,350 229,925
Range of exercise prices $10.40 to $18.31 $10.40 to $18.31 $10.40 to $18.31
Weighted-average fair value of
options granted during the year $2.57 -- $3.56
Weighted-average remaining
contractual life 7.1 years 7.4 years 8.3 years
</TABLE>
28
<PAGE>
12. Stock Option Plans (continued):
A summary of the status of options granted to the Directors by the company for
the fiscal years 1999, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 96,342 $11.35 96,342 $11.35 96,342 $11.35
Granted 45,000 11.50 -- -- -- --
------------------------------------------------------------------------------
Outstanding at end of year 141,342 $11.40 96,342 $11.35 96,342 $11.35
==============================================================================
Options exercisable at year-end 94,092 73,842 62,592
Range of exercise prices $11.00 to $11.60 $11.00 to $11.60 $11.00 to $11.60
Weighted-average fair value of
options granted during the year $2.57 -- --
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model and certain weighted-average assumptions. The
following assumptions were used for the 1999 employee grant: dividend yield of
3.34%, expected volatility of 26.18%, expected life of 5 years and risk-free
interest rate of 5.11%. The following assumptions were used for the 1997
employee grant: dividend yield of 4.02%, expected volatility of 23.02%, expected
life of 5 years and risk-free interest rate of 5.75%.
The company applies APB Opinion No. 25 and related interpretations in accounting
for its plans and, accordingly, no compensation cost has been recognized for the
stock option plans. Under Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" pro forma disclosures are required if
no compensation cost is recognized. The calculated difference between the
reported and pro forma net income amounts is $.02 per share for 1999, 1998 and
1997.
In addition, effective December 17, 1999, the Board of Directors approved a
resolution to distribute 79,304 shares to executives and managers of the company
as a conditional stock grant which expires December 17, 2002. The shares will be
distributed to the executives and managers in one-third increments upon reaching
the targeted stock prices of $12, $14 and $16. The stock must remain at each
targeted level for a minimum of five consecutive days. Compensation expense is
required to be recognized for the number of shares granted at the time the
targeted stock price levels are reached.
13. Capitalization of Interest Costs:
The company capitalizes interest as a component of the cost of significant
construction projects. The following table sets forth data relative to
capitalized interest:
1999 1998 1997
- ----------------------------------------------------------------------
Total interest $1,307,147 $926,544 $593,906
Less capitalized interest 182,678 181,263 57,086
-----------------------------------------
Interest expense $1,124,469 $745,281 $536,820
=========================================
14. Other Income, Net:
Other income, net consists of the following:
1999 1998 1997
- ----------------------------------------------------------------------
Interest income $1,074,411 $1,193,699 $1,223,126
Rental income -- -- 231,826
Other, net 206,630 413,121 152,570
-----------------------------------------------
$1,281,041 $1,606,820 $1,607,522
===============================================
29
<PAGE>
15. Provision for Income Taxes:
The provision for income taxes, at an effective rate of 34% in 1999, 34.1% in
1998, and 37.7% in 1997, differs from the amounts derived from applying the
statutory U.S. federal income tax rate of 34% to income before provision for
income taxes as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Statutory tax provision $2,526,884 $2,958,084 $3,302,365
State income taxes, net of
federal income tax benefit (20,087) (7,119) 432,473
Other, net 17,687 20,049 (70,241)
---------------------------------------------------
Provision for income taxes $2,524,484 $2,971,014 $3,664,597
===================================================
</TABLE>
Deferred income taxes represent the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year end. Significant components of the company's deferred
income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
Postretirement benefits other than pensions $7,672,822 $7,571,662
Pension and employee benefit costs 5,353,511 5,054,697
Depreciation and amortization (2,654,302) (2,601,863)
Vacation pay 929,157 940,148
Provision for doubtful accounts 1,203,182 1,188,040
Other 822,807 321,506
---------------------------------
13,327,177 12,474,190
Less current portion 2,418,107 2,021,509
---------------------------------
$10,909,070 $10,452,681
=================================
</TABLE>
16. Net Income per Common Share:
The following is a reconciliation of the basic and diluted net income per common
share computations:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income per common share - Basic:
Net income $4,702,822 $5,729,232 $6,048,240
----------------------------------------------
Weighted average shares outstanding 7,824,308 7,807,507 7,770,119
----------------------------------------------
Basic per share amount $ .60 $ .73 $ .78
==============================================
Net income per common share - Diluted:
Net income $4,702,822 $5,729,232 $6,048,240
----------------------------------------------
Weighted average shares outstanding 7,824,308 7,807,507 7,770,119
Dilutive options 40,517 145,367 125,803
----------------------------------------------
Total diluted shares 7,864,825 7,952,874 7,895,922
----------------------------------------------
Diluted per share amount $ .60 $ .72 $ .77
==============================================
</TABLE>
Options to purchase a total of 146,500 shares of common stock at a price of
$18.3125 were outstanding in 1999. Options to purchase a total of 156,500 shares
of common stock at a price of $18.3125 were outstanding in 1998 and 1997. None
of these shares were included in the computation of the diluted per share
amounts because the options' exercise prices were greater than the average
market prices of the common shares.
17. Concentrations of Credit:
The company encounters, in the normal course of business, exposure to
concentrations of credit risk with respect to trade receivables. This risk is
limited due to the large number of customers comprising the company's customer
base. Ongoing credit evaluations of customers' financial condition are performed
and, generally, no collateral is required. The company maintains reserves for
potential credit losses and such losses have not exceeded management's
expectations.
30
<PAGE>
Report of Independent Accountants
To the Shareholders and the
Board of Directors
Tasty Baking Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings, changes in capital
accounts and cash flows (page 12 and pages 18-30) present fairly, in all
material respects, the financial position of Tasty Baking Company and
subsidiaries as of December 25, 1999 and December 26, 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 25, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company has
restated prior year financial statements to give retroactive effect to the
change in accounting for its sugar and packaging supply inventories from the
LIFO method to the FIFO method.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 8, 2000
31
<PAGE>
Directors and Officers
Directors Officers
Philip J. Baur, Jr. Carl S. Watts
Retired Chairman of the Board Chairman, President and
Chief Executive Officer
Carl S. Watts
Chairman, President and John M. Pettine
Chief Executive Officer Executive Vice President and
Chief Financial Officer
Nelson G. Harris
Chairman of the Executive Committee Daniel J. Decina
Vice President, Finance
Fred C. Aldridge, Jr., Esq.
Attorney-at-law Gary G. Kyle
Vice President, Marketing and
G. Fred DiBona, Jr. National Sales
President and CEO,
Independence Blue Cross William E. Mahoney
Vice President, Human Resources
James L. Everett, III
Retired Chairman of the Board, W. Dan Nagle
Philadelphia Electric Company Vice President, Route and
Food Service Operations
John M. Pettine
Executive Vice President and Paul M. Woite
Chief Financial Officer Vice President, Manufacturing
Judith M. von Seldeneck Thomas M. Lubiski
Chief Executive Officer, Controller
Diversified Search Companies
Eugene P. Malinowski
Committees of the Board Treasurer
Audit Committee Ronald O. Whitford, Jr.
James L. Everett, III Secretary
Chairman
Edward J. Delahunty
Fred C. Aldridge, Jr. Assistant Controller
Philip J. Baur, Jr.
G. Fred DiBona, Jr.
Compensation Committee
Judith M. von Seldeneck
Chairman
Nelson G. Harris
G. Fred DiBona, Jr.
Executive Committee
Nelson G. Harris
Chairman
Fred C. Aldridge, Jr.
James L. Everett, III
Carl S. Watts
Nominating Committee
Carl S. Watts
Chairman
Philip J. Baur, Jr.
Nelson G. Harris
32
<PAGE>
Transfer Agent
American Stock Transfer
& Trust Company
40 Wall Street 46th Floor
New York, NY 10005
Stock Listing
New York Stock Exchange
Ticker symbol: TBC
Tasty Baking Company
2801 Hunting Park Avenue
Philadelphia, PA 19129
(215) 221-8500
TastyKare Department
1-800-33-TASTY
Tastykake On-Line
www.tastykake.com
All paper used in this annual
report meets or exceeds EPA
guidelines for paper containing
recovered materials.
<PAGE>
Tasty Baking Company
2801 Hunting Park Avenue
Philadelphia, PA 19129
(215) 221-8500
EXHIBIT 21
TASTY BAKING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The Registrant owns, directly or indirectly, 100% of the outstanding capital
stock of the following subsidiaries:
Business Name of Corporation Jurisdiction of Incorporation
TBC Financial Services, Inc. Pennsylvania
Dutch Mill Baking Company New Jersey
Tasty Baking Oxford, Inc. Pennsylvania
Tastykake Investment Company Delaware
The aforementioned is included in the Consolidated Financial Statements of the
Registrant filed herewith.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Post-Effective Amendment No. 10 to Form S-8 (File No. 2-55836) and
Post-Effective Amendment No. 4 to Form S-3 (File No. 33-8427) of Tasty Baking
Company and subsidiaries of our report dated February 8, 2000 relating to the
consolidated financial statements, which appears in the Annual Report to
shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated February 8, 2000
relating to the consolidated financial statement schedules, which appears in
this form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000096412
<NAME> TASTY BAKING COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-25-1999
<PERIOD-START> Dec-27-1998
<PERIOD-END> Dec-25-1999
<CASH> 705
<SECURITIES> 0
<RECEIVABLES> 22,557
<ALLOWANCES> (2,874)
<INVENTORY> 4,506
<CURRENT-ASSETS> 27,399
<PP&E> 170,395
<DEPRECIATION> (110,937)
<TOTAL-ASSETS> 111,753
<CURRENT-LIABILITIES> 12,993
<BONDS> 21,060
0
0
<COMMON> 4,558
<OTHER-SE> 40,864
<TOTAL-LIABILITY-AND-EQUITY> 111,753
<SALES> 150,662
<TOTAL-REVENUES> 151,943
<CGS> 95,697
<TOTAL-COSTS> 95,697
<OTHER-EXPENSES> 7,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,124
<INCOME-PRETAX> 7,432
<INCOME-TAX> 2,524
<INCOME-CONTINUING> 4,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (205)
<NET-INCOME> 4,703
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.60
</TABLE>
